Q2 2024 Certara Inc Earnings Call
Information.
This conference call contains time sensitive information and is accurate only as of the live broadcast today August six 2024.
William: <unk> disclaims any obligation except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise and with that I'll turn the call over to William.
William Feehery: Thank you, David, and good afternoon, everyone. Thank you for joining Certara's second quarter earnings call. John and I will begin with prepared remarks, and then we will take your questions. Certara's second quarter performance reflects continued strength in software amid a more challenging environment in services. We have found that the pace of recovery in market demand has been relatively mixed. There are positive signs among some biotechs, especially those in the clinical stage, but we see continued caution in the spending patterns of some tier one clients.
William: Thank you David and good afternoon, everyone.
William Feehery: This has affected our business segments in different ways. Our software business is growing with new products, new seats, and new clients as customers see the potential for our products to reduce costs and improve development outcomes. However, our services business is more dependent upon the overall progress of projects in the global development pipeline, where there has been reduced spending across the industry, and which has impacted our near-term commercial opportunities. That said, our conversations with customers indicate high interest in biosimulation over the long term, and specifically in Certara's software and services. Second quarter total revenue grew 3% to $93.3 million, which was slightly below our internal expectation. Underlying this was 13% growth in our software segment and negative 3% growth in our services.
Thank you for joining <unk> second quarter earnings call, John and I will begin with prepared remarks, and then we will take your questions.
William: <unk> second quarter performance reflects continued strength in software amid a more challenging environment and services.
Speaker Change: We have found that the pace of recovery in the market demand has been relatively mixed there are positive signs amongst some biotech, especially those in the clinical stage, but we see continued caution in the spending patterns of some tier one clients.
Speaker Change: This has affected our business segments in different ways or.
Speaker Change: Our software business is growing with new products, new seats, and new clients as customers see the potential for our products to reduce cost and improve development outcomes.
Speaker Change: However, our services business is more dependent upon the overall progress of projects in the global development pipeline, whether it's been reduced spending across the industry and which has impacted our near term commercial opportunities.
William Feehery: During the quarter, Certara made efforts to optimize the allocation of resources across the business, including cost reduction actions, to better position ourselves for the balance of 2024 and beyond. As we look to the future, we were encouraged to see our total bookings in the second quarter were $98.9 million, which grew 15% year over year. Throughout the quarter, the pace of commercial activity in our services business progressed towards the lower end of our expectations, with Tier 3 customers outperforming and Tier 1 customers underperforming.
William Feehery: We have not yet seen an inflection point at the market level in services demand, but we have seen some green shoots in the Tier 3 customer base that are encouraged by that customer group heading into the second half of the year. We believe that our Tier 1 customers have continued to evaluate spending priorities and pipeline development initiatives throughout the first half of the year. This has resulted in slower spending and elongated decision making, impacting our services business.
William Feehery: We are encouraged by our 14% growth in services bookings for the second quarter. As we continue our continued strength in software, re-emerging strength in biotech customers, and the normal seasonality of our business, we continue to have confidence in our full-year outlook, which we are reiterating today. The environment we have seen year-to-date falls within the range of outcomes we anticipated when we initiated 2024 guidance earlier this year. As we assess the remainder of the year, we believe a disciplined commercial strategy, new product releases, and a stable end market keep the revenue guidance range achievable, with the upper end of the guidance range possible with an improving end market outlook. But we are tracking to the lower half of the guidance range, of the revenue guidance range, given what we've seen during Q2 with our Tier 1 services customers.
William Feehery: We will continue to focus on commercial execution as we progress through the second half of the year. Next, we'll touch on some recent highlights at Certara. In the rapidly changing biopharma landscape, we're engaging with key players across the sector. For example, during our inaugural client summit, called Certainty, we brought together biosimulation experts to discuss our offerings in an interactive environment. Over 250 clients joined various tracks tailored to specific applications, networking, and engaging with the Certara team.
William Feehery: This May event included hands-on workshops for SimCip, Phoenix, and Pinnacle21, plus a preview of the co-author AI regulatory writing software. The Summit proved to be an excellent platform for solidifying customer relationships and promoting model-informed drug development. We have also continued to focus on investments that support the long-term adoption of biosimulation. Last month, we announced an agreement to acquire ChemAxon, a leading provider of cheminformatics software used in the discovery phase of drug development. This acquisition is expected to close in the fourth quarter, subject to customary closing conditions.
William Feehery: Used by 18 of the top 20 pharma companies, ChemAxon's tools span the design, make, test, and analyze framework, which is used to make lead optimization and pipeline development prioritization decisions. By integrating these tools with Certara's Bias Simulation products and AI Technology, we can enhance the use of model-informed drug development in the discovery and lead optimization phase. ChemXound is expected to generate 2024 software revenues of over $20 million with a team of over 200 employees, including more than 75 software developers. Their 2024 adjusted EBITDA margin is below Certara's corporate average, but we have a roadmap to achieve margins approaching Certara's corporate average adjusted EBITDA margin by the end of 2025.
Speaker Change: Pigeons approaching surcharge corporate average adjusted EBITDA margin by the end of 2025.
William Feehery: In the second quarter, we continue to make progress in developing new software products and product features and integrating AI across our portfolio. In early June, we released the 23rd version of SimCity, which included new features such as advanced biomarker modeling to predict drug-drug interaction risks and expanded biopharmaceutical capability. Additionally, the new version of SIMSIP aligns with recent FDA guidelines covering pH-dependent drug-drug interactions and therapeutic proteins, which should help ensure smoother regulatory processes.
Speaker Change: In the second quarter, we continued to make progress in developing new software products and product features and integrating AI across our portfolio.
Speaker Change: In early June we released the 23rd version of <unk>, which included new features such as advanced biomarker modeling to predict drug drug interaction risks and expanded biopharmaceutical capabilities.
Speaker Change: Additionally, the new version of the <unk> Alliance with recent FDA guidelines, covering ph dependent drug drug interactions and therapeutic proteins that shouldnt help ensure smoother regulatory processes.
William Feehery: We also announced the highly anticipated full commercial launch of our co-author regulatory writing software at DIA 2024. Co-author leverages generative AI to accelerate the drafting of regulatory submissions, and as it demonstrated improved efficiency to first draft by greater than 30%, it is another example of how Certara is using AI technology acquired in the Viasta transaction to develop impactful products that can ultimately drive further market penetration. Early customer feedback has been very positive, and we expect the product will generate notable commercial interest as the year progresses.
Speaker Change: We also announced the highly anticipated full commercial launch of our co author of regulatory writing software at the IAA 2024.
Speaker Change: Author Leverages generative AI to accelerate the drafting of regulatory submissions and as it demonstrated improved efficiency to first track by greater than 30%.
Speaker Change: <unk> is another example of how <unk> is using AI technology acquired in the <unk> asset transaction to developed impactful products that can ultimately drive further market penetration.
Speaker Change: Early customer feedback has been very positive and we expect the product will will generate notable commercial interest as the year progresses.
William Feehery: Wrapping up, we are working diligently to improve growth and profitability of the business in the second half of the year. There have been several exciting developments related to our software products this year, and we announced a strategic acquisition that will help accelerate industry adoption of model-informed drug development, particularly in the discovery phase, with strong synergistic growth opportunities. We continue to attract new customers and attract and add new products and features that impact drug development timelines and efficiency.
Speaker Change: Wrapping up we are working diligently to improve growth and profitability of the businesses in the second half of the year.
William Feehery: As I look forward to the rest of the year and beyond, I am confident in the investments we are making in our business and that they will translate to long-term growth. With that, I will now hand things over to John to discuss our financial results in more detail.
John Gallagher: Thank you, William. Hello, everyone.
John Gallagher: Total revenue for the three months ended June 30th, 2024, was $93.3 million, representing year-over-year growth of 3% on a reported basis and 3% on a constant currency basis. Software revenue was $38.2 million in the second quarter, which increased 13% over the prior year period on a reported basis and on a constant currency basis. The growth in the quarter was driven by biosimulation software and Pinnacle 21.
John Gallagher: Routable and subscription revenue accounted for 65% of second quarter software revenues, up from 57% in the prior year. Software bookings were $41.8 million in the second quarter, which increased 17% from the prior year period. Trailing 12-month software bookings were $145.5 million, up 11% year-over-year. The software net retention rate was 108%, which is consistent with our long-term growth profile.
John Gallagher: Looking at our software booking performance by tier, we saw very strong performance in both tier one and tier three customer segments driven by continued adoption of our software. Now turning to services revenue, which was $55.1 million in the second quarter, down 3% versus the prior year period, and on both a reported basis and a constant current basis. Our services business continues to recover following a period of cautious spending among our customers.
John Gallagher: We were pleased to see improving performance in the Tier 3 customer base, which we anticipate will continue, while Tier 1 customers underperformed our internal expectations on cautious spending, as Bill mentioned earlier. Technology-driven services bookings in the second quarter were $57.1 million, which increased 14% from the prior year period. TTM Services bookings were $262.9 million, down 2% as compared to the prior year.
John Gallagher: Total cost of revenue for the second quarter of 2024 was $39.8 million, an increase from $36.2 million in the second quarter of 2023, primarily due to a $2.8 million increase in employee-related expenses, a half-a-million dollar increase in stock-based compensation, and a $.8 million increase in software amortization. Total operating expenses for the second quarter of 2024 were $62.5 million, an increase from $41.2 million in the second quarter Drivers of increased operating expenses included higher employee-related expenses due to recent acquisitions and planned investments in sales and marketing and research and development, along with higher stock-based compensation and transaction expenses related to the debt refund.
John Gallagher: Adjusted EBITDA for the second quarter of 2024 was $26.3 million, a decrease from $32.4 million in the second quarter of 2023. The adjusted EBITDA margin was 28.2%. We expect sequential improvement in adjusted EBITDA margin in the third quarter due to the realigned resources and cost reductions mentioned earlier, and so we remain confident in our full-year adjusted EBITDA margin guidance of 31 to 33%. As Bill said in his remarks, after evaluating investments and cost allocation in the first half of the year, we have realigned resources to be more consistent with where we see the largest growth. Our focus remains on investing for growth, particularly in software and AI, while ensuring underperforming areas of the business are appropriately structured.
John Gallagher: Wrapping up the income statement, the net loss for the second quarter of 2024 was $12.6 million compared to net income of $4.7 million in the second quarter of 2023. Reported adjusted net income for the second quarter of 2024 was $11.4 million compared to $18.4 million for the second quarter of 2023. Diluted loss per share for the second quarter of 2024 was eight cents compared to earnings per share of three cents in the second quarter of 2023.
John Gallagher: Adjusted diluted earnings per share for the second quarter of 2024 was seven cents compared to 12 cents for the second quarter of last year. Moving to the balance sheet, we finished the quarter with $224.6 million in cash and cash equivalents. As of June 30, 2024, we had $296.7 million of outstanding borrowings on our term loan and full availability under our revolving credit facility. During the quarter, we took action to refinance our revolving credit facility and term loan in an effort to reduce our interest expense and push out maturities by five to seven years, respectively.
John Gallagher: These actions taken are expected to be accretive to fiscal 25 EPS by a penny and by two pennies from fiscal 26 through 31. We are reiterating our guidance for the full year 2024, excluding any impact from Camaxon, as follows. We expect total revenue in the range of $385 to $400 million, representing growth of 9 to 13% compared with 2023. Through the first half of 2024, we are tracking toward the lower half of the revenue range.
Speaker Change: Half of 2024, we're tracking toward the lower half of the revenue range.
John Gallagher: We expect to grow adjusted EBITDA on a dollar figure basis in 2024 and expect an adjusted EBITDA margin in the range of 31 to 33%. Upon the closing of the Camaxon transaction, we do expect to maintain our adjusted EBITDA margin guidance of 31 to 33%. We expect adjusted EPS in the range of $0.41 to $0.46 per share, fully diluted shares in the range of $160 to $162 million, and a tax rate in the range of 25 to 30%. I will now turn the call back over to our CEO, William Feehery, for closing remarks.
Speaker Change: We expect to grow adjusted EBITDA on a dollar figure basis in 2024, and expect an adjusted EBITDA margin in the range of 31% to 33%.
Upon the closing of the <unk> transaction, we do expect to maintain our adjusted EBITDA margin guidance of 31% to 33%.
Speaker Change: We expect adjusted EPS in the range of 41 to <unk> 46 per share fully diluted shares in the range of $160 million to $162 million.
Speaker Change: And a tax rate in the range of 25% to 30%.
William theory: I will now turn the call back over to our CEO William theory for closing remarks.
William theory: Thank you John.
William Feehery: To summarize our message today, we were pleased with the many exciting developments at Certara in the second quarter, and we remain focused on executing our growth and profitability goals in 2024. There's a lot to be excited about at Certara as we advance biosimulation with our innovative technology. Operator, can you please open the line for questions? Thank you.
William theory: To summarize our message today, we were pleased with the many exciting developments at <unk> in the second quarter, and we remain focused on executing our growth and profitability goals in 2024.
Speaker Change: There's a lot to be excited about at <unk> as we advanced by a simulation with our innovative technology.
Speaker Change: Operator can you. Please open the line for questions.
Unknown Executive: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by for our first question. Our first question comes from Jeff Garro from Stevens. Your line is now open.
Speaker Change: Thank you at this time, we will conduct a question and answer session.
Speaker Change: A reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.
Speaker Change: Your question. Please press star one again.
Speaker Change: Our first question.
Speaker Change: Our first question comes from Jeff Garro from Stephens. Your line is now open.
Jeff Garro: Yeah, good afternoon. Thanks for taking the questions. Maybe start with the guidance and you know, appreciate the direction there that you're tracking towards the lower half of the range on revenue. But maybe you could give some more comments on what gives you confidence that you won't slip below the bottom end of that range.
Jeff Garro: Yeah. Good afternoon, thanks for taking the questions maybe start on the guidance and I appreciate the the direction there.
Speaker Change: That youre tracking towards the lower half of the range on revenue, but maybe you could give some more comments on what gives you confidence that that you won't slip below the bottom end of that range.
Speaker Change: Yes.
John Gallagher: Yeah, hi Jeff. This is John. I can take that one.
Speaker Change: Yes, Hi, Jeff This is John I can take that one so.
Speaker Change: Yes, so as you pointed out.
John Gallagher: So yeah, as you pointed out, you know, and we said in the remarks, we're tracking toward the lower half of the guidance range, given the current environment, that's primarily due to the performance that we've seen in Q2 on the Tier 1 Services Cut. So they are tracking below what our expectations were. But that being said, we do expect software to continue to do well. As we mentioned, we're seeing good signs in tier three customers, both in software and in service.
Speaker Change: We said in the remarks, where we're tracking towards the lower half of the guidance range given the current environment and Thats, primarily due to the performance that we've seen.
Speaker Change: In Q2 on the tier one services customers. So that they are tracking below what our expectations were.
Speaker Change: But that being said, we do expect software to continue to do well.
Speaker Change: We mentioned, we're seeing good signs and tier three customers both in software and in services and then if you take those together with typical seasonality that we've seen including last year. So last year was a tough end market environment and we've talked typical seasonality in Q4 then.
John Gallagher: And then if you take those together with typical seasonality that we've seen, including last year, so last year was a tough end market environment; we saw typical seasonality before, then that's what gives us the confidence on.
Speaker Change: That's what gives us the confidence.
Speaker Change: Maintaining that range.
Unknown Executive: Excellent, that helps. And then maybe hit the profitability side a little bit. I was hoping you could speak a little bit more about the cost reductions. Maybe you could help us by calling out which line items will see more of an impact and then how we should think about the run rate of those actions on an annualized basis versus the impact we'll see in Q3. And then, more strategically, why any cost reductions taken in in recent weeks or months won't impact the long-term growth opportunity for the company.
Speaker Change: Excellent that helps and then maybe to hit the profitability side, but was hoping you could speak a little bit more to the cost reductions.
Speaker Change: Help us by calling out which line items, we will see more impact in <unk> and then how.
Speaker Change: We should think about the run rate of those actions on an annualized basis versus the impact we'll see in Q3, and and then more strategically why any cost reductions taken in.
Speaker Change: Weeks or months.
Unknown Executive: Thanks.
Speaker Change: Impact the long term growth opportunity for the company.
Speaker Change: Yeah.
John Gallagher: Yeah, right. So, as we said, we were reallocating resources based on where we're seeing the biggest growth. So we're focusing the investment dollars on software and integrating AI, and then we're taking some cost actions as it relates to areas that are underutilized or underperforming parts. As far as how you see that showing up, that's what gives us confidence in the guide on EBITDA margin because those actions have already been taken and are showing up in the P&L now.
Speaker Change: Yeah right so.
Speaker Change: What we as we said we are reallocating resources based on where we're seeing the biggest growth opportunities. So we're focusing the investment dollars on software and integrating AI.
Speaker Change: And then we're taking some cost actions as it related to areas that were underutilized or underperforming parts of the business as far as.
Speaker Change: How you see that showing up so that's what gives us confidence in the guide on the EBITDA margin because those actions have already been taken and are showing up in the P&L.
John Gallagher: So those will continue to flow through, not only in Q3, but also in Q4. And the way to think about it is, you know, you should think about it as about a 500-basis point benefit or impact on percent revenue costs. And you'd see about 300 of that come on the cost of sales line, and about 200 coming off that.
Speaker Change: So those will continue to flow through not only in Q3, but also in Q4 and the way to think about it is.
Speaker Change: You should think about it as about a 500 basis.
Speaker Change: Uh huh.
Speaker Change: Benefit or impact.
Speaker Change: On a percent revenue costs and you'd see about 300 of outcome on the cost of sales line and about 200 come in Opex.
Unknown Executive: And maybe we can take the last part around why the cost actions won't impact the growth opportunity from here. Oh, yeah.
Speaker Change: And then maybe bill can take the William can take the last part around why the cost actions will impact the growth opportunity from here.
Unknown Executive: So I think we've just adjusted based on what we see as the current situation in the market. We haven't cut our investments in new products or in the long-term vision and health of Certara. We've maintained our investments, as John said, in AI. Just, you know, we trimmed a little bit here and there based on what we saw in the market for, you know, just market demand in the short run, which I think were prudent to do.
William Feehery: Oh, yeah. Thanks, Jeff. I appreciate it.
William: Yeah, Thanks, Jeff I appreciate it.
William: So I think we've just.
William: Adjusted based on what we've seen is the current situation.
William: Situation in the market, we havent cut our investments in new products or who are in the long term vision and health of Setara.
Speaker Change: We've maintained our investments as John said in an AI just a.
John: A little bit here and there based on what we saw in the market in.
John: Market demand in the short run.
John: That I think we're prudent to do some of it was just we just.
Unknown Executive: Some of it was that we just decided not to hire positions that we intended to hire. And, you know, we're committed to getting to our EBITDA margin guidance. And that's one of the actions we took to get there.
John: Decided not to higher positions that we intended to hire.
Speaker Change: We're committed to.
John: Two to getting to our.
John: EBITDA margin guidance and that's one of the actions we took to get there.
Unknown Executive: Great, thanks for taking the questions.
Speaker Change: Great. Thanks for taking the questions.
Speaker Change: Thank you.
David Windley: Our next question comes from David Windley from Jeffreys. Your line is now open.
Speaker Change: Our next question comes from David Windley from Jefferies. Your line is now open.
David Windley: Hi, thanks. Good afternoon.
David Windley: Hi, Thanks. Good afternoon. Thanks for taking my questions I wanted to pick up on where Jeff left off on I guess on the magnitude 500 basis points.
Speaker Change: Pretty substantial.
Speaker Change: I guess, if I, if I zoomed out.
Speaker Change: You entered this year.
David Windley: Thanks for taking my questions. I wanted to pick up on where Jeff left off, I guess, on the magnitude of 500 basis points is pretty substantial. And I guess if I zoomed out, you entered this year with your bookings trajectory having been, you know, a little bit challenging and making the decision to, you know, actually spend a little bit more and invest in some growth, I think, targeted at R&D and sales and marketing, I see, you know, on your deck.
Speaker Change: With.
Speaker Change: Your bookings trajectory, having been a little bit challenging in making the decision to.
Speaker Change: Actually spend a little bit more and invest in some growth I think targeted at R&D and sales and marketing.
Speaker Change: In your in your deck.
David Windley: On your 2024 business update slide, you do talk about reduced spending in sales and marketing. And so I guess I wanted to understand a little bit the bigger picture about, You know, Bill, I appreciate your comments on the current environment, but what, maybe, has changed in the six months since the decision to kind of double down on some investments as you entered 2024?
Speaker Change: On your 2024 business update slide you do talk about reduced spending in sales and marketing and so.
Speaker Change: I guess I wanted to understand a little bit the bigger picture about.
Bill: Bill I appreciate your comments on current environment, but what maybe what's changed in the six months.
Speaker Change: Since the decision to kind of double down on some investments as you entered 2024.
William Feehery: Yeah, thanks, David. I'll start, and then John can chime in with some of the numbers.
Speaker Change: Yes, Thanks, David I'll start and then John can can chime in.
Bill: Some of the numbers here, but I think what we saw as we went into 2024 is theres a tremendous opportunity for us to continue to invest in software and in particularly in the AI investments that we started to make.
William Feehery: But I think what we saw as we went into 2024 is there's a tremendous opportunity for us to continue to invest in software and, particularly, in the AI investments that we started to make. When we bought Viasa and Inda last year, we've continued to make them, and they're starting to pay off. We launched a product recently, which is just getting out there, but it's been very well received by customers. So we see those investments as worth continuing and paying off.
Speaker Change: When we bought the asset and it'll turn into last year. We've continued to do them and they are starting to pay off we've launched a product recently.
Speaker Change: Which.
Speaker Change: It's just getting out there, but it's.
Speaker Change: Been been very well received by customers. So we see those investments is worth continuing and paying off what we saw during the first half of the year.
William Feehery: What we saw during the first half of the year was... We've had some, I think in the beginning part of the year, we had, you know, some softness in tier three; they picked up as we went through the year, but there's still a little bit of softness in tier one as we go.
Speaker Change: Was.
Speaker Change: We've had some I think in the beginning part of the year, we had some softness in tier threes they've picked up.
Speaker Change: As we went through the year, there is still a little bit of.
Speaker Change: You know of softness in tier ones as we go through so.
William Feehery: So that's particularly in the services side. And so, you know, it's it's it's, you know, easier to adjust. It's relatively easier for us to adjust our cost position and services relative to the longer term investments in software. And so, you know, we took some some necessary actions there. So, John, if you want to chime in on that.
Speaker Change: That's particularly in the services side and so.
Speaker Change: It's easier to adjust its relatively easy for us to adjust our cost position and services relative to the longer term investments in software and so.
Speaker Change: We took some some necessary actions there to Jonathan do you want to chime in on that.
John Gallagher: Yeah, yeah, yeah, Bill. So, hi, David.
Jonathan: Yes, Yes, yes, Bill Hi, David I think.
Jonathan: Well, what we did there is we were slowing some head count growth so.
Jonathan: Piece of it.
Jonathan: And we were really targeting as bill was just saying we are targeting the underutilized areas of the business to take some costs out we're.
Speaker Change: It wasn't efficient and so at the time that we did the guide on the fourth quarter call. We said that we had.
John Gallagher: I think, you know, what we did there was slowing some headcount growth. So that's a piece of it. And we were really targeting, as Bill was just saying, the underutilized areas of the business to take some costs out where it wasn't efficient. And so at the time that we did the guidance on the fourth-quarter call, we said that, you know, we had put together our investments, and we had expected the plan to play out in a certain way.
Bill: Put together.
Speaker Change: <unk> then we had.
John Gallagher: And, you know, some of the plan isn't playing out in the way that we expected at the time that we did that guide. And we've said, if that was the case, we would need to take actions to maintain EBITDA. And we've done that. And we've done that, as you would, as you would expect us to, basically because of what we saw happening with tier one services customers. Okay.
Bill: Expected to plan to play out in a certain way.
Bill: Some of the plant isn't playing out in the way that we expected at the time that we did that guy that we said if that was the case, we would need to take actions to maintain the EBITDA and we've done that.
Bill: We've done that.
Bill: If you would as you would expect us to basically because of what we saw happening with tier one services customers.
David Windley: Okay, and if I could follow up on that, good segue there, in thinking about services, my intuition is that services with your big customers would maybe lean a little bit more toward regulatory and market access, and smaller customers would lean a little bit more toward biosim services. Is that right? Such that like the service weakness that you're seeing in tier one is in a different area than the weakness you maybe had seen in small and that's improving now in small, or is it, or is it really in the same area all in a kind of biosim?
Bill: Okay.
Speaker Change: If I could follow up on on that good segue there.
Speaker Change: And thinking about services.
Speaker Change: My intuition is that.
Speaker Change: Services with your big customers would maybe lean a little bit more toward regulatory and market access and smaller customers would lean a little bit more towards <unk> services is that right such that like to services weakness that youre seeing in tier one is in a different area then.
Speaker Change: We can issue maybe you had seen in small and that's improving now in small or is it or is it really in the same area all in kind of a biosimilar.
John Gallagher: It's really in both. So it's, you know, the services weakness that we're seeing is it's both in regulatory and it's in biosynthesis.
Speaker Change: It's really a boat so.
Speaker Change: It's the services weakness that we're seeing is it.
Speaker Change: Both in regulatory and it's in biotech and in services.
David Windley: Okay, great. Thanks. I'll follow up.
David Windley: Okay, great. Thanks. I'll follow up offline. Thank you.
Speaker Change: Okay, great. Thanks, I'll follow up offline. Thank you.
Speaker Change: Thank you.
Michael Cherny: Our next question comes from Michael Cherny from Lear Inc. Partners. Your line is now open.
Speaker Change: Our next question comes from Michael Cherny from Leerink Partners. Your line is now open.
Unknown Executive: Great, thank you. This is Dan Clark on for Mike. First from us, how are you guys thinking about pricing on the services side, just with these elongated, you know, customer conversations on the tier one side? Like, how do you kind of balance indiscretion in pricing or pricing pieces and getting deals done?
Speaker Change: Great. Thank you this is Dan Clark on for Mike.
Dan Clark: First of all.
Dan Clark: How are you guys thinking about pricing on the services side just with these elongated.
Dan Clark: You know customer conversations on the tier one side like how do you kind of balance.
Speaker Change: The discipline in pricing or price increases.
Speaker Change: Yes.
Speaker Change: Sure.
Unknown Executive: Yeah, I'd say that the price increases are more modest given the, you know, given the environment that we're in and the cautious spend and the slower decision making. We are still increasing prices, but we're increasing them more modestly.
Speaker Change: Yes, I'd say that the price increases are more modest given the.
Speaker Change: Given the environment that we're in and the cautious spend of the slower decision making.
Speaker Change: We are still increasing price but.
Speaker Change: We're increasing more modestly.
Unknown Executive: Thanks. And then just a quick modeling question. The customer summit you guys held in 2Q, how should we think about the expense and the sales and marketing on just to kind of model the rest of the year there? Thank you. Yeah, so as we were just saying, you know, the, the, the
Speaker Change: Thanks, and then just a quick modeling question.
Speaker Change: A customer.
Speaker Change: You guys held in <unk>, how should we think about the expense more sales and marketing line as you can kind of model.
Speaker Change: Thank you.
Unknown Executive: Yeah, so as we were just saying, the first half and the 2Q sales and marketing expense is increasing based on the investment that we made and to some degree because of the M&A transactions that we brought in. We have taken actions, as we were just discussing, that are going to slow headcount growth and would slow the headcount growth that we have on that line item.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Just saying.
Speaker Change: The first half and the <unk> sales and marketing expenses.
Speaker Change: Is increasing based on the investment that we made and to some degree because of.
Speaker Change: M&A transactions that we brought in.
Speaker Change: We have taken actions as we were just discussing that are going to slow head count growth.
Speaker Change: Slow that head count growth that we have on that line item also.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Michael Ryskin: Our next question comes from Michael Ryskin from B of A. Your line is now open.
Speaker Change: Our next question comes from Michael Raskin from Bofa.
Speaker Change: Your line is now open.
Michael Ryskin: Hi, this is Wolf on from Mike. Thanks for taking the question, guys. I kind of want to pick back up on the guidance theme, but perhaps just take a step back to end markets overall. I think we all kind of saw SMID biotech funding take a sequential step down in 2Q and thought that CRO or larger pharma spend with CROs and the like seemed fairly stable. Obviously, you're kind of pointing to the opposite dynamic from that, so I'm just wondering if you can talk about how the tenor of your conversations with those two customers evolved over the course of the quarter.
Michael Raskin: Some more funds and Mike. Thanks for taking the question guys I kind of want to pick back up on the guidance theme, but perhaps just take a step back to end markets. Overall, I think we all kind of sauce smid biotech funding take a sequential step down in <unk> and thought that CRA larger pharma spend with.
Speaker Change: Zero is in like seemed fairly stable, obviously, you're kind of pointing to an opposite drawing that dynamic from that so I'm. Just wondering if you can talk to how the tenor of your conversations with those two customers evolved over the course of the quarter.
William Feehery: Yeah, thanks for your question.
Speaker Change: Yeah. Thanks for your question.
William Feehery: I think what we saw was there was a pickup in small biotech funding in the first quarter, and then I think we saw, we believe that we saw that start to flow through in the second quarter. So there's some lag between what happens in funding and, obviously, when it reaches us.
Speaker Change: I think what we saw was there was a pick up in the small biotech funding in the first quarter and then I think we said we believe that we saw that start to flow through in the second quarter. So there is some lag between what happens in funding and and obviously when it reaches us.
William Feehery: But you know, the pickup was welcome because we had seen weakness in that segment for, you know, really quite some quarters now. So it was good to see, you know, see them come back. I think for the larger customers, it's You know, we saw just more caution around spending. It's certainly true. In past years, we've seen pickups in the second half, and particularly as you go into the very end of the year, as customers, you know, want to spend their budget. So we're, you know, we're sort of cautiously watching what happens to that market, and you know, obviously we factored that into the guidance that we gave.
Speaker Change: But the pickup was welcome because we had seen weakness in that segment for really quite some quarters now.
Speaker Change: So it was good to see.
Speaker Change: And then come back I think on the larger customers.
Speaker Change: We saw just more caution around spending.
Speaker Change: <unk>.
Speaker Change: It's certainly true in past years, we've seen pickups in the second half and particularly as you go into the very end of the year as is.
Speaker Change: As customers.
Speaker Change: Want to spend their budgets so we're.
Speaker Change: We're sort of cautiously watching what happens to that market.
Speaker Change: And obviously, where we factor that into the guidance that we gave.
William Feehery: And then just one more kind of strategic one. Can you talk about the rationale behind the Camaxon deal? I'm just interested in your kind of intent to expand more into the preclinical space and what opportunities you see there.
Speaker Change: Got it. Thank you and then just one more kind of strategic one could you talk to the rationale behind the cum axon deal.
Speaker Change: Just interested in your kind of intent and expanding more into their preclinical space and what opportunities that you see there.
William Feehery: Yeah, thanks for the question. So, you know, Chemexon is an important acquisition for us. I think a lot of people have asked me...uh, for a while, what are some areas that we're interested in expanding into, and we've always talked about pre-clinical and the discovery space as being areas that are ripe for biosimulation to make a bigger impact. You know, sorry, most of them.
Speaker Change: Yeah. Thanks, Thanks for the question so.
Speaker Change: <unk> is an important acquisition for us I think a lot of people have asked me.
Speaker Change: For a while what are what are some areas that we're interested in expanding in and we've always talked about.
Speaker Change: Preclinical in the discovery space as being areas that are ripe for biosimilars to make a bigger impact.
Speaker Change: Sorry.
Speaker Change: Most of it.
William Feehery: The bio-simulation help that we provide our clients in Certara has been sort of pre-clinical and then especially in the clinical phase, and we do really well there, but it's important to be able to help our clients make informed decisions on which drugs to take forward and which leads to optimize. We see an opportunity there to make a bigger impact on the overall success of drug development, and ChemAxon has quite a number of tools that we believe that we can integrate into a wider suite of bio-simulation tools going forward to enable that. It was wonderful. Thank you.
Speaker Change: The Biosimilar <unk>.
Speaker Change: It helped that we provide our clients in Tara has been sort of a preclinical and then especially in the clinical phase and we do really well there but it's.
Speaker Change: <unk>.
Speaker Change: Important to be able to make help our clients make informed decisions on on which drugs to take forward and which leads to optimize we.
Speaker Change: We see we see an opportunity there too to make it a bigger impact on the on the overall success of drug development and Cemex on has quite a number of tools that we believe that we can integrate into a wider suite of biosimilars <unk> tools going forward to enable that.
Unknown Executive: wonderful. Thank you for the answers, guys.
Speaker Change: Wonderful. Thank you for the answers guys.
Speaker Change: Thank you.
Luke Sergott: Our next question comes from Luke Sergott from Barclays. Your line is now open.
Speaker Change: Our next question comes from loop forgot from Barclays. Your line is now open.
Luke Sergott: This is Salem on for Luke. Thanks for the questions.
Speaker Change: This is Sam on for Luke Thanks for the questions Piggybacking off of <unk> question on on Biotechs in biotech funding.
Speaker Change: Is the expectation for the rest of the year.
Speaker Change: I know, you're you're suspecting that youre seeing sort of the.
Speaker Change: <unk> pick up flowing through this quarter, but what's what's kind of embedded in the guide for the rest of the year on an.
Speaker Change: How does biotechs are going to perform.
Luke Sergott: Piggybacking off of Wolf's question about biotech and biotech funding, what's the expectation for the rest of the year? I know you suspect that you're seeing sort of the one-cue pickup flowing through this quarter. But, you know, what's kind of embedded in the guide for the rest of the year about how those biotechs are going to perform?
Speaker Change: Yes. Thanks for the question Jon do you want to take that one yeah, Yeah got it bill.
John Gallagher: Yeah, thanks for the question, John. Do you want to take that one?
Jon: The way too.
Jon: Thing through the customer carrying on the biotech for the remainder of the year as well.
Jon: We are not planning an uplift on tier three we were pleased to see.
Speaker Change: Bit of an uptick in Q2, but we.
Speaker Change: We have the guide really contemplate.
Speaker Change: A continuation of just sort of stability on the tier three customer base.
Speaker Change: But that being said.
Speaker Change: I mentioned earlier, we do anticipate typical seasonality so turning to tier one customers. The guide does contemplate a.
Speaker Change: Pickup in tier one customer activity in Q4, which is what we've seen historically and importantly, we saw last year.
Speaker Change: <unk> also that had.
John Gallagher: Yeah, yeah, I got it, Bill. The way to think through the customer tiering of the biotech for the remainder of the year is that we are not planning an uplift on tier threes. We, you know, we were pleased to see, you know, a bit of an uptick in Q2, but we have the guidebook which really contemplates a continuation of just sort of stability on the tier three customer base. But that being said, you know, I mentioned earlier, we do anticipate typical seasonality.
Speaker Change: <unk> and market environment, so that that's the only piece of seasonality or uptick that we really have planned into the guidance.
Speaker Change: Got you that's really helpful.
Speaker Change: And then a follow up on just software bookings you mentioned, maybe some strength was driven by expansion of Biosimilar <unk> to new customers is this okay.
Speaker Change: Mostly driven by new offerings, and I'm kind of curious if co author was a significant portion of bookings.
Speaker Change: To the new and Vale.
Speaker Change: Or is this more of a side effect of the commercial re org and could you just give us an update on the progress there and how it's trending versus your expectations on synergies.
John Gallagher: So, turning to tier one customers, the guide does contemplate a pickup in tier one customer activity in Q4, which is what we've seen, you know, historically, and importantly, we saw last year during a time also when the end market environment was difficult. So, you know, that's the only piece of seasonality or uptick that we really have planned into the guide.
Speaker Change: Thanks, So maybe I'll start with that one Jon so.
Luke Sergott: Gotcha, that's really helpful. And then, on just software bookings, you mentioned maybe some strength is driven by the expansion of biosimulation to new customers. Is this mostly driven by new offerings? And I'm kind of curious if co-author was a significant portion of bookings due to the new unveil, or is this more of a side effect of the commercial reorg? And could you just give us an update on the progress there and how it's trending versus your expectations for synergies? Yeah, thanks.
William Feehery: Thanks. Yeah, thanks. Maybe I'll start with that one, John.
Speaker Change: You know we saw.
William Feehery: So, you know, we saw nice growth in our core software products, and particularly SimSip and Pinnacle 21, so that was good to see. Co-author was just, you know, sort of fully launched at the end of June. So it's a bit too early for that to have a significant impact on our bookings, but we did, You know, have a pretty big launch, and we've received quite a bit of interest in that product.
Speaker Change: Nice growth in our core software products, and particularly some soup and political 'twenty one so.
Speaker Change: That was good to see co author was just.
Speaker Change: Sort of fully launched.
Speaker Change: At the end of June so, it's a bit too early for the for that to be a significant impact on our bookings, but we did.
Speaker Change: I have a pretty big launch and we've received quite a bit of interest for that product. So, let's let's watch as we go forward, but it didn't plan play a significant effect of the numbers that we reported for the quarter.
William Feehery: So let's watch as we go forward, but it didn't have a significant effect on the numbers that we reported for the quarter. Um... And, you know, I'd say across the board, we saw a lot of interest in AI. There's, you know, been basically a steady stream of feature launches and product extensions in our SimCity family, which has contributed, which has contributed a lot to the growth. So those are the kind of, I would say it's kind of in the core software areas that we saw the best growth.
Luke Sergott: Awesome. I appreciate it.
Speaker Change:
Speaker Change: And.
Speaker Change: I'd say across the board we saw.
Speaker Change: A lot of interest in AI.
Speaker Change: There is.
Speaker Change: Basically.
Speaker Change: Steady stream of feature launches and product extensions in our Simpson family, which contributed which has contributed a lot to the growth. So those are the kind of I would say it was kind of in our core software areas that we saw the best growth.
Speaker Change: Awesome I appreciate it.
Speaker Change: Thank you.
Speaker Change: Yeah.
Joseph Vruwink: Our next question comes from Joe Vruwink from Baird. Your line is now open.
Speaker Change: Our next question comes from Joe <unk> from Baird. Your line is now open.
Joseph Vruwink: Great. Hi, everyone. If the smaller customers are buying biosimulation software and starting to become more visible in the services pipeline, is there any history for you to say that your large customers tend to follow the small customers within a matter of some quarters? Or is the current regulatory environment the large customers are dealing with so different that it kind of muddies any historical comparisons you might make?
Joe: Great Hi, everyone.
Speaker Change: The smaller customers are buying guys simulation software and starting to become more visible in the services pipeline is there any history for you to say that your large customers tend to follow the small customers within a matter of some quarters or is this the current regulatory environment a large cuts.
Speaker Change: Those are dealing with so different.
Speaker Change: Muddy as any historical comparisons you might make.
William Feehery: Yeah, thanks, Joe. It's a good question. I think we see them as markets operating a little bit differently. We think that, you know, what we've seen was the large customers have gone through a period of many of them rethinking their large portfolios of drugs, you know, which ones are going to continue to take forward and which ones are not. Obviously, that's not really the question for the smaller ones who are, you know, trying to do most of them are trying to get funded for one drug or one platform.
Speaker Change: Yeah. Thanks, Joe that's a good question I think we see them as.
Speaker Change: As the market's operating a little bit differently, we think that what we've seen was the large customers have gone through a period of.
Speaker Change: A number of them.
Speaker Change: What are you thinking there.
Speaker Change: Large portfolios of drugs.
Speaker Change: Which ones are going to continue to take forward and which ones. They are not obviously, that's not really the question for the smaller ones who are.
Speaker Change: Trying to get most of them are trying to get funding for one drug or one platform.
Speaker Change: So I'm not sure that we tend to see.
William Feehery: So I'm not sure that we tend to see I wouldn't want to call it a causal link like you're talking about. Now, obviously, you know, biotechs often go through M&A with larger customers at some point. So, maybe somewhere down the line, that will be in effect, but it's not really in our thinking for the rest of the year.
Speaker Change:
Speaker Change: What do you want to call it a causal link like Youre talking about now obviously.
Speaker Change: Biotechs, often go through M&A with larger customers at some point so.
Speaker Change: Maybe somewhere down the line that that'll that'll that'll be an effect, but it's not kind of it's not really in our thinking for the rest of the year.
Speaker Change: Okay. Thank you.
William Feehery: Okay, thank you. And then just the tougher backdrop, specifically for regulatory services, any risk that that carries over to your regulatory-focused software offerings, or, as you mentioned at the start of the call, just large customers, very focused on cost reductions and efficiencies, is a tougher environment you're seeing on the services side, actually beneficial in bringing up things like Pinnacle, or maybe it creates an even more favorable launch environment for something like coauthor.
Speaker Change: And then just the tougher backdrop, specifically for regulatory services any risk that that carries over to your regulatory focus software offerings or.
Speaker Change: I mentioned at the start of the call just large customers very focused on cost reductions and efficiencies.
Speaker Change: Is it tougher environment Youre seeing on the services side actually beneficial and bringing up things like pinnacle or maybe it creates an even more favorable launch environment something like co author.
William Feehery: Well, CoAuthor is a pretty interesting tool. We've, you know, in our internal testing, we've seen pretty substantial reductions in the amount of... uh... hours it takes to create regulatory documents, and so I think in any type of environment, significant cost savings like that are a good pitch. And so that's why we're getting, I think, well, we're being well received there. I think it helps that we have a regulatory business.
Speaker Change: Well co authors of pretty interesting tool.
Speaker Change: And our internal testing, we've seen pretty substantial reductions in the amount of.
Speaker Change: Hours it takes to create regulatory documents and.
Speaker Change: So I think in any type of environment.
Speaker Change: Significant cost savings like that are a good pitch and so thats why were getting.
Speaker Change: I think we're being well received there.
Speaker Change: It helps that we have a regulatory business and so we've used.
William Feehery: And so we've used that experience to inform the creation of that product. So let's kind of think of that as, you know, we had this product almost designed by the users of the software. And so that's given us a pretty good sense of how to design something that's truly useful in that market. I would say, you know, we still see continued spending across the board by customers on software, most of whom look at the software as, you know, once you're in there, they tend to look at it as continued investment in their infrastructure.
Speaker Change: That experience to inform the creation of that product. So it's kind of think of that as we had this product is almost designed by by by the users of the software and so that's given us.
Speaker Change: Pretty good.
Speaker Change: Pretty good sense on how the how to design something that's that's truly useful in that market.
Speaker Change: I would say.
Speaker Change: We still see continued spending across the board.
William Feehery: So as long as they're going to continue to do R&D, they're going to need most of our software. And so, you know, the discussion is around how much renewal and and you know, what are we doing with new features and new extensions and things like that? So that I think that's one reason why we've seen that as a stronger market right now. Whereas the services have tended to be more project-based, as people adjust their portfolios and they stop some drugs and start others, you know, there's some disruption to the flow of projects that come through to us. And so that's been a factor this year.
Speaker Change: Hi.
Speaker Change: Customers on software most of whom look at the software as once youre in there they tend to look at it as continued investment in their infrastructure. So as long as theyre going to continue to do R&D theyre going to need most of our software and so.
Speaker Change: The discussions are around.
Speaker Change: How much renewal and what are we doing with new features and new extensions and things like that so I think that's one reason why we've seen that as a stronger market right now, whereas the services have tended to be more project base as people adjust their portfolios and they stopped some drugs and start others. There is some disruption too.
Speaker Change: Due to the flow of projects that come through to us and so that's that's been a factor this year.
Joseph Vruwink: Okay, I'll leave it there. Thank you very much.
Speaker Change: Okay I'll leave it there thank you very much.
Max Rains: Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. Our next question comes from Max Rains on behalf of William Blair. Your line is now open.
Speaker Change: Thank you as a reminder to ask a question you will need to press star one one on your telephone and wait.
Speaker Change: To be announced.
Speaker Change: Our next question comes from Matt from William Blair. Your line is now open.
Max Rains: Hey, good afternoon. Thanks for taking our questions. I wanted to ask a question along the same lines as Wolf's question earlier.
Speaker Change: Hey, Hey, good afternoon, thanks for taking my questions.
Matt: Wanted to ask a question along the same lines as well.
Max Rains: So on the services side, given we've seen clinical CROs hold up pretty well, is it fair to assume that at least a chunk of these programs from large pharma are moving forward, but they're elected to do so maybe without your consulting services? Or do you really think it's more a function of the fact that you're missing out on bidding on and working on these clinical programs that are actually being paused and reevaluated And therefore, maybe there's a potential for you all to still recognize revenue from these programs in the back half of the year or 2025 as they potentially move forward.
Speaker Change: <unk> earlier, so on the services side, given we've seen clinical cro's hold up pretty well.
Speaker Change: Is it fair to assume that at least a chunk of niche programs from large pharma and moving forward. There are left you introduce some maybe without your consulting services or do you really think it's more a function of the fact that you're missing out on bidding and working on these clinical programs that are actually being paused and reevaluated and therefore, maybe there is a potential for you all to still recognize revenue from these programs in the back.
Speaker Change: Half of the year or 2025 has a potential to move forward.
William Feehery: Yeah, there's, we do believe that. And, in addition, we point to the fact that we did see an uptick in services bookings in the second quarter. So, you know, I would say it's too early to call a huge recovery in the market, but we are seeing improvement, as you know, in the overall environment as we move forward to the second half of the year. I don't know, John, if you want to.
Speaker Change: Yes, we do believe that in addition, we point to the fact that we did see an uptick in services bookings.
Speaker Change: In the second quarter so.
Speaker Change: I would say.
Speaker Change: Too early to call a huge.
Speaker Change: Recovery in the market, but.
Speaker Change: We are seeing improvement as.
Speaker Change: And the overall environment as we as we move forward in the second half of the year I don't know John if you want to come.
John: Comment on that.
John Gallagher: Yeah, yeah, we anticipate having we, when we did the guide, we said it'd be a first half, second half story, particularly on services. And we're seeing that, you know, in the way that this year is playing out, we'd anticipate to have, you know, 48, 49% first half, 51, 52% second half. And so we typically do see services pick up in the latter part of the year, and namely in Q4. So that's the typical seasonality that we've been referring to, and that we saw last year. So we do think that that'll be a component of how this year plays out.
Speaker Change: Yes, yes, I think.
John: We anticipate having when.
Speaker Change: When we did the guide we said it would be a first half second half story.
Speaker Change:
Speaker Change: Particularly on services.
Speaker Change: We're seeing that in the <unk>.
Speaker Change: This year is playing out we would anticipate to have a 48, 49% first half 50, 152% in second half and so we typically do see services pick up and in.
Max Rains: Got it. That's helpful. Thank you.
Speaker Change: In the latter part of the year and named.
Speaker Change: Namely in Q4, so that's the typical seasonality that we've been referring to and that we saw last year.
Speaker Change: So we do think that that'll be a component of how this year plays out.
Max Rains: And maybe sticking on the services booking side. I guess, based on your comment, that they were relatively in line with your expectations. But any comment around, you know, what you're looking for in the quarter and then how services bookings in particular stacked up? I know when we talked last quarter, you kind of pointed us to 2021 and 2022 from a seasonality perspective. Looks like the average step down in those years was about 10 percent sequentially, and they were down about 20 percent sequentially here in the second quarter of this year. So any comment around just how services bookings kind of stacked up to your expectations here in the second quarter?
Speaker Change: Got it that's helpful. Thank you and then maybe sticking on the services booking site.
Speaker Change: I guess it sounds like based on your commentary.
Speaker Change: Relatively in line with your expectations, but any comment around what you're looking for in the quarter and then how services bookings in particular stacked up I know when we talked last quarter, you kind of pointed us to 2021 and 2022 from a seasonality perspective.
Speaker Change: It looks like the average stepped down in those years was about 10% sequentially and they were down about 20% sequentially here.
Speaker Change: Second quarter of this year so.
Speaker Change: Any comment around just how services bookings kind of stack up to your expectations here in the second quarter.
John Gallagher: Yeah, so they, I mean, the services bookings did come in later than we had expected, given the tier one performance that we had seen. But that being said, you know, services bookings did grow 14% year on year. And as we look forward to the second half, then, you know, as I mentioned, I think probably the key component in the second half is the seasonality that we've seen and we saw last year. And importantly, we're not, we're not anticipating anything outsized in that seasonality compared to what we saw last year. Got it. Thanks for taking our questions.
Speaker Change: Yes.
Speaker Change: Services bookings did come in lighter than we had.
Speaker Change: As expected.
Speaker Change: Given the tier one performance.
Speaker Change: <unk> seen that.
Speaker Change: Services bookings did grow 14% year on year and as we look forward to the second half then.
Speaker Change: As I mentioned I think probably the key component in the second half of the seasonality that we've seen and we saw last year importantly, so we're not we're not anticipating anything outsized in that seasonality compared to what we saw last year.
Speaker Change: Got it thanks for taking my questions.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Steve Dechert from Keybanc. Your line is now open.
Steve Dechert: Hey, guys. Just wondering if you think the launch of start cloud had an impact on your second quarter bookings.
Max Rains: Thank you.
Unknown Executive: It's still early days.
Speaker Change: It's still early days, Steve for for <unk> cloud.
Speaker Change: Material impact on the bookings so.
Speaker Change: The answer to that although as we said our software bookings and our software revenue continues to be strong. We don't see any reason for that is the change in sort of tower cloud.
Speaker Change: Cloud is a key component of our strategy going forward and we think that that's going to enable not just that product, but all of the products in.
Speaker Change: Our portfolio, but for Q for Q2 that wouldnt have been a meaningful part of our bookings.
Speaker Change: Thank you.
Unknown Executive: This concludes our question and answer session. Thank you for your participation in today's conference. This does conclude our program. You may now disconnect.
Speaker Change: This concludes our question and answer session. Thank.
Speaker Change: Thank you for your participation in today's conference. This does conclude our program you may now disconnect.
Speaker Change:
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].