Q4 2024 Simulations Plus Inc Earnings Call
Yeah.
Speaker Change: Greetings and welcome to the simulations plus fourth quarter and fiscal year 'twenty 'twenty four 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.
Speaker Change: As a reminder, this conference call is being recorded 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 fourth quarter and fiscal 2024 financial result conference call.
Lisa Fortuna: With me today are Shawn O'connor, Chief Executive Officer, and we'll Frederick Chief Financial Officer, and Chief operating officer of stimulation.
Lisa Fortuna: Please note that we updated our quarterly earnings presentation, which will serve as a supplement to today's prepared remarks, you can access the presentation on our Investor Relations website at Www Dot simulation cash plus dot com.
Lisa Fortuna: After management's commentary, we will open the call for questions.
Lisa Fortuna: As a reminder, the information discussed today may include forward looking statements that involve risks and uncertainties.
Lisa Fortuna: Words like believe expect and anticipate referred to our best estimates as of this call and 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.
Speaker Change: With that I'll turn the call over to Sean. Please go ahead.
Sean: Thank you Lisa good afternoon, everyone and thank you for joining our fourth quarter and fiscal 'twenty 'twenty four conference call.
Sean: Our team delivered strong results in 2024 total revenue increased 18% year over year and 14% on an organic basis, excluding the fourth quarter contribution for public transportation fees.
Sean: The organic growth rate was above the 10, 5% growth rate, we achieved in fiscal 2023.
Sean: And at the high end of our guidance provided at the beginning of the fiscal year.
Sean: Full year diluted EPS was <unk> 49 cents exceeded the high end of our guidance range of 46 to 48.
Sean: Turning to key highlights of the year.
Sean: As an industry leader in Biosimilars and software tools, we continue to improve our competitive edge during fiscal 2024.
Sean: With major upgrades across our platform supporting P. P. P K PK PD.
Sean: In drug discovery.
Our release of G. P X and May significantly enhanced our flagship gastro plus P V. PK platform with advanced models refined algorithms and integrated machine learning technology.
Sean: Castro Plex play sax greatly enriches the user experience with.
Sean: With an intuitive interface streamlined workflows and faster processing.
Sean: In May we released monolithic suite 'twenty 'twenty four.
Sean: This release included integrations presets, and other upgrades that make the software easier and faster to run, allowing scientists to spend less time on programming and more on exploring models and simulation results.
Sean: In July we released Avnet predictor version 12, our machine learning Kim Informatics platform in support of drug discovery.
Sean: The release included enhanced models with greater predictive accuracy and expanded high throughput pharmacokinetics capabilities amongst other new feature.
Sean: Yeah.
Sean: During fiscal year 'twenty 'twenty four we continued to supplement our organic growth with strategic acquisition accomplishments.
Sean: We completed the integration of our June 'twenty twenty-three acquisition, if it meant that tricks.
The combined scientific resources and therapeutic area coverage position.
Sean: Clear leader in the fast growing area of quantitative systems pharmacology.
Sean: The 57% growth in fiscal year 'twenty four.
Sean: This June we acquired proficiency.
Sean: The largest and most significant acquisition in our company's history.
Sean: The transaction doubles, our Tam to $8 billion and significantly expands our market opportunity.
Sean: This addition, enhances our ability to support clients across clinical operations and medical affairs and commercialization.
Our comprehensive suite of innovative solutions now spans the entire drug development continuum.
Sean: And uniquely positions us to drive growth and profitability.
Sean: Next I'll spend a moment on the macro environment, which will be realized as an area of particular focus for the financial community.
Sean: Spending environment for pharma and biotech has been passed and funding constrained for a second fiscal year.
Sean: Current leading indicators, including pharma budgets clinical trial activity funding activity and others provided mixed bag of metrics for the next year.
Sean: It is suggested potentially improved environment compared to the last two years.
Sean: We continue to observe a wide range of activity levels among our clients.
Sean: Many who are engaged in their internal calendar year 'twenty five budget preparation process.
Sean: Although we are encouraged by some positive initial budget discussions for 2025.
Entering the year with cautious optimism.
Sean: <unk> for fiscal year 'twenty five is based upon current market conditions continuing well.
Sean: But we will be prepared to take advantage of any improvement in our clients spending during the year.
Sean: Turning to our software segment.
Sean: Software revenue grew by 12% for fiscal year, 'twenty, four 9% on an organic growth basis.
Sean: Software revenue grew by 6% for the fourth quarter and decreased 6% on an organic growth basis.
Sean: Kim Informatics business unit revenue grew 6% for the year and 1% in the fourth quarter.
Sean: During fiscal year 'twenty four we have grown the number of clients utilizing E. D. T module to 15 of our total installed base of 110 admit predictor clients.
Sean: Physiologically based pharmacokinetics or P. B P K.
Sean: Unit revenue increased 7% for the year and decreased 8% in the fourth quarter gas.
Sean: Castro plus continues to grow well, despite some renewals slippage in the fourth quarter and I'm going softer growth in the Asian markets.
Sean: Clinical pharmacology and pharmacokinetics or our C. P P business unit.
Sean: Revenue grew 18% for the fiscal year and 20% during the quarter.
Sean: <unk> continues to increase its market share and displace its main competitor is the PK P D platform of choice.
Sean: Revenue in our quantitative systems pharmacology or Qs T business unit grew 7% for the year decreased 67% for the quarter.
Sean: As a reminder, quarterly results can be lumpy for U S. P software based upon the high ticket price per license.
Sean: Smaller pool of end users.
Sean: Revenue in our adaptive learning and insights are alli business unit was $1 1 million for the fourth quarter generally in line with our expectations.
Sean: Revenue in our medical communications or M C business unit.
Sean: $100000 for the fourth quarter also in line with our expectations.
Turning to our services segment.
Sean: Services revenue grew by 26% for fiscal year, 'twenty, 421% on an organic basis.
Sean: Services revenue grew by 39% for the fourth quarter, 21% on an organic basis.
Sean: We're pleased with this result, given client cost constraint measures.
Nicley impact external service budgets as clients may eliminate project work or delay execution and tighter funding environments.
Performance was especially strong in our C. P P and K S P business units.
Sean: C. P. P business unit revenue was strong up 19% for the fiscal year and up 28% in the fourth quarter.
Sean: U S. P business unit revenue grew 57% for the year and 32% in the fourth quarter.
Sean: TV PK business unit revenue decreased 5% for the fiscal year and 6% for the fourth quarter.
We continue to encounter client source data delays impacting the initiation of contracted projects in this space.
Sean: Medical Communications revenue was $1 1 million in the fourth quarter.
Sean: Contribution was less than anticipated due to higher revenue recognized in the quarter prior to our acquisition as well as some project timing delays.
Turning to an update on proficiency as a reminder, proficiency provides experience and content simulation developed with AI technologies to enhance clinical trial success.
Sean: Data analytics and medical communications, both in the regulatory approval process as well as post approval commercialization.
Ultimately these activities support increased confidence and regulatory success for our clients.
Sean: In addition, proficiency meaningfully expands our customer return on investment.
Sean: Helping them achieve accelerated clinical trial cycles.
Sean: Reduced protocol deviations.
Sean: <unk> cost to clinical trial operations and improved market awareness to <unk>.
Sean: I'm buying product and service portfolio results and offerings across the pharma value chain.
Software offerings from proficiency in Cleveland.
Sean: Proficiency performance management.
And adaptive learning platform that uses lifeline simulation and detailed data tracking to increase recruitment retention and protocol compliance during clinical trials.
And simulations of complex real world scenarios learners are asked to make decisions and practice implementation of the trial protocol.
Sean: The data generated provides insight into areas of the trial protocol.
Sean: That are unclear to health care practitioners, enabling clarification and further education prior to the start of clinical trials.
Speaker Change: Panorama K O L insights is a platform for key opinion leaders research in the life science industry.
It provides current information about influential industry leaders.
Speaker Change: Which can be filtered by criteria, including but not limited to therapeutic expertise professional affiliations and geographical location.
Yeah.
Speaker Change: We're pleased to report that the integration process is tracking ahead of plan across all fronts.
Speaker Change: As previously announced we formed two business units adapt.
Speaker Change: Adaptive learning and insights to carry forward with our clinical simulations business.
Speaker Change: By Generalists.
And medical Communications led by Maria outbreak.
Speaker Change: Who do address medical affairs and commercialization support for our clients.
Speaker Change: On the sales and marketing from our combined go to market strategies and lead generation are underway. We expect these efforts to contribute to business development opportunities.
Speaker Change: Our scientific and technological capabilities are expected to deliver enhanced products and services, which further benefit our clients.
Speaker Change: And Additionally, we have integrated our back office financial operational and general and administrative organizations, which we will we expect will contribute to efficiencies and expense savings.
Speaker Change: With that I'll turn the call over to well.
Thanks, Sean.
Speaker Change: Recap, our strong fourth quarter performance total revenue increased 19% to $18 $7 million, including the $2 3 million dollar contribution from proficiency.
Speaker Change: Software revenue increased 6%, representing 53% of total revenue.
Speaker Change: Services revenue increased 39%, representing 47% of total revenue.
Speaker Change: Fiscal year total revenue increased 18% to $70 million.
Speaker Change: Software revenue increased 12%, representing 59% of total revenue and services revenue increased 26% representing 41% of total revenue.
Speaker Change: Turning to the software revenue contribution from our products for the quarter Gastro plus was 49% monolithic suite was 17% admit predictor was 18% and other products were 15%.
Speaker Change: For the fiscal year gas surplus was 53% monolithic suite was 20%.
<unk> predictor was 18% and other products were 9%.
Speaker Change: For the year, our software customer renewal rate was 93% based on fees and 84% based on accounts, both increasing slightly compared to the prior year.
Speaker Change: Average software revenue per customer for the year increased to $129000.
Speaker Change: Shifting to our services revenue contribution by business unit for the quarter C. P was 36% U S. P was 35% P. B PK was 17% and M. C was 13%.
Speaker Change: For the fiscal year C. P. P was 43% Q U S. P was 31% P. B PK was 23% and M. C was 4%.
Speaker Change: Total services.
Speaker Change: Total services projects worked on during the quarter with 250.
Speaker Change: Year end backlog decreased $14 $1 million, primarily impacted by two sources first there were some service contracts that slipped into September and in the first two weeks of fiscal 2025, we've already closed more than $3 million. These second we adjusted the backlog in the fourth quarter. This year.
Speaker Change: To remove open contracts that have been delayed where theres still uncertainty regarding when the customers will resume the projects.
Speaker Change: As a result anticipated revenue from backlog within 12 months increased to approximately 90% compared to 70% to 80% at the end of last year.
Speaker Change: Total gross margin for the fiscal year was 62% with software gross margin of 84% and services gross margin of 30% a.
Speaker Change: The year over year decline in gross margin was primarily due to the re class of operating expenses with the reorganization of our internal structure.
Speaker Change: The full year expense impact from that you mean that tricks acquisition last year and the additional expenses from the proficiency acquisition this year.
Turning to our consolidated income statement for the quarter R&D expense was 10% of revenue compared to 7% last year.
Sales and marketing expense was 14% of revenue compared to 11% last year.
Speaker Change: G&A expense was 19% of revenue compared to 63% last year.
Speaker Change: G&A expense variance was primarily due to the reclassify expenses this year to cost of revenues reflected in the reorganization of our internal structure I've mentioned at the beginning of the year.
Speaker Change: We also made a true up of all the international services related expenses for the year in the fourth quarter.
Speaker Change: G&A expense for the fourth quarter also included $1 $7 million of transaction related expenses for the acquisition of proficiency. This year and included $2 $5 million of transaction related expenses for the acquisition of immune metrics last year.
Speaker Change: The transaction expenses related to you mean electric's last year included a 1.6 million dollar compensation expense.
Speaker Change: Total operating expenses were 43% of revenue compared to 80% last year, primarily due to the re class of expenses to cost of revenue this year.
Set by the addition of expenses related to proficiency this year.
Speaker Change: Loss from operations was negative 6% of revenue compared to negative 2% last year and income before income taxes was 5% of revenue compared to zero percent last year.
Speaker Change: Other income was $2 million this quarter compared to <unk> $4 million last year, primarily due to a decrease in the fair value of the immuno tricks earn out liability this year.
Speaker Change: Net income for the fourth quarter was point $8 million or 5% of revenue compared to $25 million or 3% of revenue last year.
Diluted EPS was four cents compared to three since last year and adjusted diluted EPS, excluding the impact of transaction related costs were six cents compared to 18 cents last year.
Speaker Change: This year over year change was primarily driven by the transaction related expense add back to diluted EPS in Q4 last year being larger than the add back in Q4 this year.
Fourth quarter, adjusted EBITDA was $4 $1 million compared to $4 $9 million last year at 22% and 31% of revenue respectively.
Speaker Change: We calculate 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 and any asset impairment charges. The.
Speaker Change: Of this non-GAAP metric to net income the relevant GAAP metric is in our earnings release and on our website.
Speaker Change: Income tax expense for the fourth quarter was less than $1 million compared to income tax benefit of $5 million last year.
Speaker Change: And our effective tax rate was 2% compared to 674% in the prior year period.
Speaker Change: As a reminder, we true up our annual income tax estimates in the fourth quarter, each year, which impacts the effective tax rate in the quarter.
Speaker Change: Turning to our consolidated income statements for the fiscal year R&D expense was 8% of revenue equivalent to last year.
Speaker Change: Sales and marketing expense was 13% of revenue compared to 11% last year, primarily due to our increased investment in sales and marketing.
Speaker Change: G&A expense was 32% of revenue down from 47% last year.
Speaker Change: G&A expense for the year included $2 $6 million of transaction related expenses for the acquisition of proficiency. This year and included $3 $3 million of transaction related expenses for the acquisition of Indian metrics last year.
Speaker Change: Total operating expenses were 53% of revenue compared to 66% last year income from operations was 9% of revenue compared to 15% last year and income before income taxes was 18% of revenue compared to 20% last year.
Speaker Change: Other income was $6 $3 million during the year compared to $3 million last year, primarily due to an increase in interest income and the previously mentioned decrease in the fair value of the Indian ethics earn out liability.
Speaker Change: Net income for the fiscal year was $10 million or 14% of revenue compared to $10 million or 17% of revenue last year.
Speaker Change: Diluted EPS was <unk> 49 cents equivalent to last year and adjusted diluted EPS, excluding the impact of transaction related costs were 53 compared to 67 cents last year.
Speaker Change: Adjusted diluted EPS was lower than expected, primarily due to the lower transaction related expense add back to diluted EPS in the fourth quarter.
Speaker Change: Fiscal year, adjusted EBITDA was $23 million compared to $26 million last year at 29% and 35% of revenue respectively.
Speaker Change: Income tax expense for the fiscal year was $2 $5 million.
Speaker Change: <unk> to $1 $7 million last year, and our effective tax rate was 20% compared to 15% last year.
Speaker Change: We expect our effective tax rate for fiscal year 2025 to be in the range of 23% to 25%.
Turning to our balance sheet, we ended the year with $20 million in cash and investments, we remain well capitalized with no debt and strong free cash flow to execute our growth strategy.
Speaker Change: I'll now turn the call back to Sean.
Speaker Change: Yeah.
Speaker Change: Thank you will.
We're very pleased with our 2024 performance and our results reflect strong execution in both our software and service segments.
Speaker Change: Also the integration of the most significant acquisition in the history of our company is progressing ahead of our expectations.
Speaker Change: Moving onto our outlook for fiscal 2025.
Speaker Change: Based upon current market conditions, our organic growth is expected to be in the range of 10% to 15% consistent with fiscal year 'twenty four and.
Speaker Change: In addition, the proficiency acquisition is expected to contribute $15 million to $18 million consistent with the range. We previously provided.
Speaker Change: Our guidance for fiscal 2025 is as follows.
Speaker Change: Total revenue between 90 and $93 million.
Speaker Change: Year over year revenue growth in the range of 28% to 33%.
Speaker Change: Software mix between 55 and 60%.
Speaker Change: Adjusted EBITDA margin between 31 and 33%.
Speaker Change: Adjusted diluted earnings per share of $1 seven.
Speaker Change: To $1 20.
Speaker Change: We're providing guidance on adjusted diluted EPS versus diluted EPS consistent with guidance practices for our industry.
Speaker Change: For comparison purposes, our adjusted diluted EPS guidance translates to at or above our fiscal year 'twenty for diluted EPS of <unk> 49.
Speaker Change: Of note our guidance does not include the impact of any future acquisitions.
As a reminder, our first physical.
Speaker Change: The quarter is historically, our lowest revenue quarter due to the seasonality of our revenue streams.
Speaker Change: As such diluted EPS could dip below breakeven and although diluted adjusted EPS will be above the diluted EPS level, we still expect some impact we.
Speaker Change: We anticipate higher revenues in the remaining quarters of fiscal 2025, as we have had in the past, resulting in higher profitability in the remaining quarters of our fiscal year.
Speaker Change: Our near term priorities include completing the acquisition integration.
Speaker Change: Expanding cross selling opportunities and driving towards our historical adjusted EBITDA margin target of 35% to 40% and correspondingly profitable profitability levels.
Speaker Change: We are well positioned to achieve our goals this year and remain focused on executing our disciplined growth strategy.
Speaker Change: To deliver long term value to our stakeholders.
Speaker Change: Thank you for your time today with that I'll turn the call over to the operator for your questions.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thank you well now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from do Kim.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Okay.
Speaker Change: Thank you. Our first question is from Max Smock with William Blair. Please proceed with your question.
Max Smock: Hi, great. Thank you for taking our question.
Our first one I was just hoping you can give an update on scaffolding services I would call the very low attrition rate in that business had been weighing on margins. So curious if this trend has continued over the last few months and I'm.
Max Smock: What are your hiring plans look like in 2025, I'm basically trying to get at when we can expect utilization to improve and how we should think about the cantos margin progression in 2025.
Speaker Change: Yeah. Thanks for the thanks for the question.
Speaker Change: As we indicated last conference call our back half profitability in Q3, and Q4 was impacted.
Speaker Change: As we hired to our plan, but attrition.
Speaker Change: That we baked into that plan.
Speaker Change: It was much less than anticipated.
Speaker Change: That has contributed to some pressure in terms of margins in the service business Oh I'm about half of the year continued into the end of the fourth quarter, we have the.
Speaker Change: Sensus became more visible adjusted our recruiting plans on a go forward basis and anticipate that we'll get back.
Speaker Change: Line, if you will with the matching of the capacity into and revenue streams on the service side.
In the first half of the fiscal 'twenty.
Speaker Change: 25, so a little bit of pressure in the first half of next year, but believe that the improvement.
Speaker Change: The improvement will be gradual and through the first half and into the second half we should be back on back on track and that's.
Speaker Change: As reflected in our guidance of the <unk>.
Speaker Change: 31% to 33% EBITDA.
Speaker Change: EBITA margin and about a dozen improvement through the course of the deal.
Speaker Change: Yeah.
Speaker Change: Great. Thank you that's really helpful. And then just one of them professionally proficiency in terms of its competitive moat.
Speaker Change: Given we have seen a continuing trend and expectation for more trials to be run by Sierra Ellis.
Speaker Change: And given the proficiency doesn't sell into Sierras do you see this is Lynn Lewis sides of your business opportunity in this space.
Speaker Change: Oh, no no I mean, maybe the marketplaces that they sell into.
Speaker Change: Is and support department clients in their clinical trials.
Speaker Change: And association with the arrows that are out there we are.
Speaker Change: Our complementary to their services.
Speaker Change: To those that do offer the sort of.
Speaker Change: Comparable with people training type of capabilities, but the proficiency offering is pretty unique in terms of the birth, it's a training.
Speaker Change: The joint development and the software platform that supports it.
Speaker Change: In terms of it's a deliberate delivery and the impact on.
Speaker Change: Adherence to clinical trials, so clinical trial uptick in 2025 would be favorable.
Indicator for the proficiency business and you know that.
Speaker Change: It sells through and marketplace alongside see arrows in competition with some see her rose, but that's the same marketplace that it's been selling them to succeed in the last number of years.
Speaker Change: Oh, great. Thanks for the color there and then lastly, just a quick modeling question sorry, if you already said it I missed it but how much did in you're not tricks and proficiency contribute to total sales in Q4 and also one of those breakdown in terms of software versus services.
Speaker Change: Asking.
Speaker Change: Based on the press it seems like the inorganic contribution was much lower than we would've thought in the fourth quarter I am sorry. If this is the case can you discuss the dynamics are less.
Speaker Change: Yeah Proficiencies contribution.
Speaker Change: And a bit below the $3 million of expectation that we had that came in about 2.1 0.2.
Speaker Change: A million of revenue in the second quarter, primarily in terms of the medical communications side.
Speaker Change: We're our anticipation of how much.
Speaker Change: The project revenue the service revenue from medical Communications.
Speaker Change: It would be recognized in the quarter prior to our close of the transaction. Obviously, we don't pick up the revenue flow from those projects until close which was mid June timeframe.
Speaker Change: So that's a recognition at the beginning of the quarter was a little bit greater than we anticipated and then secondly, yeah. They are.
Speaker Change: Subject to some of the delays the receipt.
Speaker Change: You know across our service business in terms of some projects being pushed out.
So 2.1 in terms of the proficiency contribution to the fourth quarter.
Speaker Change: And no.
Speaker Change: It does not change our expectation in terms of.
Speaker Change: $15 million to $18 million of a contribution of more than 25.
Speaker Change: Any metrics fourth quarter contribution I don't have it in fourth quarter.
Speaker Change: Is not a.
Acquisition revenue.
Speaker Change: Fourth quarter contribution revenue in 'twenty three.
Speaker Change: One was worth going into 'twenty, four and you know our integration of that business now.
Speaker Change: <unk> is pretty well complete.
Speaker Change: Servicing those are opportunities.
From the combined staff of our two organizations so.
Speaker Change: Don.
Speaker Change: And a breakout of the of that for the for the fourth quarter.
Speaker Change: No that was all really helpful and just as you were talking I thought I've heard 2025 kind of a similar question on proficiency. It seems like you're counting proficiency revenue is all inorganic I decided it kind of clothing like you sat in the fourth quarter. So I was just hoping that you can help us.
Speaker Change: French organic versus inorganic growth expectations for next fiscal year, and if you can buy both software and services.
Speaker Change: Yeah.
Speaker Change: Yeah, just don't provided other than our expectation that the software will be.
Speaker Change: <unk> in the range of 55% to 60% of of our total revenues I don't have the breakout in terms of the software versus services, but.
Speaker Change: Or let's call. It S. L P legacy business everything except proficiency our guidance is based upon.
Speaker Change: The assumption of that organic growth will be in the 10% to 15% range a similar too.
Our guidance for last year fiscal year, 'twenty, four which tend to push 10 to 15 per cent crew, which we came in at about 14.
Speaker Change: <unk> growth.
Speaker Change: And then 2025 proficiency contribution should be in.
Speaker Change: In that range of $15 million to $18 million above that.
Speaker Change: Great. Thank you so much.
Sure.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question is from Matt Hewitt with Craig Hallum. Please proceed with your question.
Good afternoon. Thanks for taking the questions maybe first off could you help US bridge the gap on your EPS guidance for next year I'm, just trying to figure out.
Speaker Change:
Speaker Change: So significantly higher than I was model than the street was model I'm, just trying to figure out what the Delta is there. Thanks.
Speaker Change: Yeah, I think it's in the context of the you know the.
Speaker Change: The two line items of the adjusted.
Speaker Change: Diluted EPS versus our diluted EPS.
Speaker Change: We've added adjusted diluted EPS as a it seems to be the.
Speaker Change: Commonality with our peers, so that there can be some compare about comparability.
Speaker Change: Willie you want to provide some color in terms of the differential there.
Speaker Change: Sure. Thanks for the question Matt.
And I would refer to the reconciliations that we have in the press release was one of the things we did for FY 'twenty. Four is we've got a reconciliation of adjusted EBITDA to net income.
Speaker Change: And for the most part we've got typical exclusions there that we've communicated in the past the adjusted diluted EPS to diluted EPS.
Speaker Change: We've we've really just taken transaction related expenses as the adjustment.
Speaker Change: And based on the feedback we're getting from folks as well as sort of comparative in the industry. It makes sense to standardize in FY 'twenty five so for this next fiscal year to just have the reconciliation items there in the adjusted EBITA.
Speaker Change: B the same adjustments that are going to be for the adjusted diluted EPS.
Speaker Change: With the tax impact as well so FY 'twenty four was just an adjustment for transaction related expenses FY 'twenty five we'll have a consistent approach with the way we do the adjusted EBITDA just to simplify it.
Speaker Change: That's helpful. But I guess I was looking for I mean are you expecting $5 million and acquisition related expenses, there's a pretty big Delta from where everybody was before on an adjusted basis to your new guidance. There was a that's a pretty big step up and I'm just trying to figure out what is the bucket that you are seeing that the big.
Speaker Change: Increase I'm guessing, it's M&A expenses, but I just want to make sure I'm thinking about this right.
Speaker Change: Yeah right right now we don't have any M&A expenses assumed in the guidance you mentioned that it excludes any acquisitions so to the extent that if you. If you look through the EBITDA rec.
Speaker Change: A reconciliation the big drivers there are depreciation and amortization expense and stock comp expense I mean, those combined were about $11 million to $12 million in FY 'twenty four and we'll have an increase with the additional intangible amortization from the preferred.
Speaker Change: Since the acquisition so that that total probably goes to about 14 $15 million of.
Adjustments.
Speaker Change: Got it alright, and then shifting gears and Sean if you could provide a little bit of an update on how the integration with proficiencies, particularly on the sales and marketing efforts.
Speaker Change: Are those teams have been fully trained at this point what are the pipe the dog in a cross selling pipelines looking for thank you.
Speaker Change: Yeah we've.
Speaker Change: Integrated.
Speaker Change: Sales and marketing personnel that came to us in the acquisition from proficiency into our consolidated business development team.
Speaker Change: And undertaken training.
Termination of presentation of capabilities to bring people up to speed in terms of the you know.
Speaker Change: Our new products and services to come into the fold them.
Speaker Change: Market place.
Speaker Change: We've transitioned over the last couple of years.
Speaker Change: Our sell through points and historically have been.
Speaker Change: The discovery Department for Admin predictor, and then primarily the modeling and simulation.
Speaker Change: Organization on that.
Speaker Change: Clinical side.
Speaker Change: Previous.
Speaker Change: So this year, we invested time and effort in expanding to a third touch point the clinical management teams that are.
Speaker Change: Our consolidated group.
Speaker Change: Personnel that manage a drug program.
Speaker Change: Of which the modeling and simulation representative has a seat at that table.
Speaker Change: But extending our relationship into that area and I think that's been one of the keys to supporting are pretty healthy service growth and in a very challenged market environment and that has been the result of identifying opportunities to impact positively of drug program that perhaps the modeling and simulation department.
Speaker Change: It has been.
Speaker Change:
Speaker Change: Already used up has been cut.
Speaker Change: Yeah, certainly concentrated can constrained environment is and has made those budgets a little tighter.
Speaker Change: We opened ourselves up for our service business to be funded out of them.
Speaker Change: Clinical trial budget and that I think is supported and good wins in the sale of our <unk>.
Speaker Change: Success on our service side during during a challenging time.
Speaker Change: Long winded intro into through Proficiencies acquisition, we're now undertaking that same extension out to their touch points.
Speaker Change: The clinical operations team.
Speaker Change: And the medical affairs team.
<unk> more than our clients and so the first step in terms of the.
Speaker Change: I meant in the marketplace externally from the company are is to start extending those those networks and building those relationships into those new budget opportunity.
Speaker Change: <unk> that are available to us and that's.
Speaker Change: That's gone very well I mean, we're three months into.
Speaker Change: Into the close after the close of the acquisition in such a short window of time, but.
Speaker Change: Think we're moving pretty well down.
Speaker Change: Got it alright, thank you.
Speaker Change: Thank you. Our next question is from David Larsen with BTG. Please proceed with your question.
David Larsen: Hi, can you talk a little bit more about the software revenue growth on a year over year basis, I think I heard you say it was down 6% year over year organically is that correct and how does that compare to your own internal expectations.
Speaker Change: What was that internal growth rate Uh huh.
Speaker Change: Again at grocery for the year. Please thanks very much.
Speaker Change: Yes.
Speaker Change: Yeah, well can you just remind us of the specific growth rates on the software side as I flipped through mine, making sure I get it right I mean, the growth rate was was down in the fourth quarter, but up 12% for the year and 9% organically.
Speaker Change: Okay.
Speaker Change: Yeah, I mean, the total revenue for the year yeah.
Speaker Change: So yeah, how order fourth quarter revenues were down.
Speaker Change: On the software side.
Speaker Change: Really the challenge there is as Ben was twofold one.
Speaker Change: We did have a couple of the renewals slippage is off the past August 31st day and into the first quarter.
Speaker Change: But you know are a real challenge has been in the Asian market, that's not new.
Issue. It's one that's really been a you know a influx.
Influx since our since Covid quite frankly.
Speaker Change: A particular focus for us as we move into fiscal year 'twenty five we've been you know over growing if you will in our North America, and European markets and compensating for that but Oh, it's an area for improvement for us going forward.
Speaker Change: Okay, and I think I see the software gross margin of around 72% in the fourth quarter, which usually in the 90% range. So should we think about that as being like an unusual quarter because of some renewal timing and you'll get back up to that 90% range.
Speaker Change: <unk> of next year, or so should we see that organic software revenue growth top pop back up starting in fiscal weren't you.
Speaker Change: Software revenue margin is impacted I don't know that it went all the way down into the seven days of them.
Speaker Change: It was in the mid eighties.
Speaker Change: And so some impact there is as we indicated earlier that the software side of the proficiency business is you know down towards 80 ish percent ER compared to our 90 plus percent in terms of our existing software or legacy software products.
Speaker Change: So some impact there and.
Speaker Change: The proficiency overall profitability both in terms of software as I, just described and on the service side.
Speaker Change: We see what it means for improving those as we move through the course of the year, we improved it tremendously through the acquisition in terms of rationalizing some of the overhead expenses of that business unit. It starts in the fourth quarter and the start of fiscal year 'twenty five with a profitability.
Speaker Change: <unk> profile that on a percentage basis is a is a little less than our legacy model. If you will the overall company EBIT dollar guidance of 31% to 33%.
Speaker Change: You know underlying that on the legacy side S. L. P M, probably could've been up towards that goal that we set for ourselves of 35% to 40%.
Speaker Change: But proficiency impacts that then in 'twenty five we believe in the longer term into 26, we'll get them in line with our profitability profile, but.
Speaker Change: That'll continue to improve to get to that level through the course of 2020 time. So on the software side specifically back to your question there was some impact from.
Speaker Change: Proficiency there are I think well gradually system improvement.
Speaker Change: As we go quarter to quarter through 25.
Speaker Change: Great one more quick one I think the service gross margin you reported them.
Speaker Change: Am I seeing this correctly minus 4% in fiscal <unk> and I'm, assuming that that's shrunk proficiency and it's my understanding that proficiency is very much tied to like the clinical trial activity basically training the folks at the site and how do you basically implement the clinical trial next in line with.
Speaker Change: Basically the trial Master file. So can you maybe just talk about perhaps I don't know the mix of clinical trials, you're supporting for example, if there is more obesity health related clinical trials.
Speaker Change: If you're seeing a slowdown in like perhaps gene therapies, because the funding environment I would think would be very good just anymore color there and I think you hired a couple of science just last quarter.
Speaker Change: Are they being like are they selling.
Just any more color on that.
Speaker Change: The expected lift in our service gross margin. Thank you.
Speaker Change: Yeah, No a two part answer.
Speaker Change: I'll talk to.
Speaker Change: The proficiency sides of your question and then well maybe you can talk to the slipped to the fourth quarter margin.
Speaker Change: With some reclassifications there.
Speaker Change: Proficiency in terms of support of the clinical trial activity on the.
Speaker Change: <unk> side is a primary focus a business driver if you will.
Speaker Change: No specialty in terms of singular therapeutic areas there.
Our portfolio of past projects spans our you know most all therapeutic areas tends to be more valued.
Speaker Change: And difficult.
Speaker Change: Complex clinical trial protocols.
Speaker Change: We're obviously a.
Speaker Change: You know more aggressive the comprehensive training ahead of its initiation benefits protocol adherence.
Speaker Change: More significantly, but theres no theres no.
Speaker Change: Therapeutic area sort of concentration.
Speaker Change: In terms of their.
Speaker Change: Portfolio activities well you wanted to talk about the margin.
Speaker Change: Sure and I can answer it for the software and the services. So Q4, certainly has some true ups that we do when we look at that on an annual basis and we go through the audit process.
Speaker Change: 72% you mentioned for software for the quarter in Q4 that that was primarily due to just the email.
Speaker Change: You mean metrics software.
Speaker Change: [noise] impacts coming in a bit lighter, but as Sean mentioned the.
Speaker Change: Mid eighties, or where we would expect to see.
Speaker Change: Going forward I used to be in the 85 to 90 range and you mentioned there would be some decline there on the services side for Q4, we did look through the year I think I mentioned it.
Speaker Change: During the call there was an adjustment that we made it was about two and a half million dollars mm.
Speaker Change: Through the year for our international efforts that we have with employee services group are they're all worked through our professional employer organization or a P E O.
Speaker Change: We re classes from G&A expense for the year into services, we did that in Q4, so that again looking forward. The total total year's 30% services margin as we continue going forward and are leveraging the efficiency business and our business.
Speaker Change: Looking for upsides with our billable utilization focus.
Speaker Change: 30% to 40% range, where we'd be targeting.
Speaker Change: Thanks very much appreciate it.
Speaker Change: Sure.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question is from Scott show in House with Keybanc Capital markets. Please proceed with your question.
Speaker Change: Hey team Thanks for taking my question.
Scott show: I wanted to touch on the 10% to 15% organic growth outlined for next year.
Speaker Change: We sit here today, you said your guidance contemplates levels from what we're seeing here today, which is clearly depressed you had the same kind of guidance organic revenue guidance last year. So maybe walk us through what is expected or built into the low end of that range than the top end of that range and maybe specifically also on like where do you think the biotech end market.
Speaker Change: It is expected to be for next year.
Yeah, Hey, we're all trying to throw a dart.
Speaker Change: And I read the tea leaves in terms of Oh are we are already moving forward and were certainly some parts of some positive things.
Speaker Change: There'll be a permanent CEO.
Speaker Change: Spoke or positive way today of market opportunity into into 2025.
Speaker Change: And we see a lot of positive too.
Speaker Change: Discussions of late are in terms of the client's budgetary processes.
Speaker Change: That phenomena of our industry in which hey, we've got a few dollars left to spend this year, we lose it if we don't spend it by the end of the calendar year.
Speaker Change: Hum some great discussions taking place right now and saying I want to be optimistic, but I'm also conscious.
Speaker Change: We've seen upticks in funding that had been short lived and pulled back.
Speaker Change: And therefore, you know our approach here in terms of the guidance for 25 is Ah Ah is is pretty.
Speaker Change: Conservatively set based upon okay. The market as it is today.
Speaker Change: The range of 10% to 15% organic growth.
Speaker Change: We came in.
Speaker Change: Higher end of that range this year.
Speaker Change: I've got confidence in our organization, we've executed well in a challenging market over the last two year window of time and that would would be confident in terms of our ability to perform at the high end of that range, but guidance being what it is we would take a conservative approach.
Speaker Change: Carryforward or 10% to 15% from last year, but boys.
Speaker Change: Current market conditions do.
Speaker Change: No a run on the uptick and started to improve the this fourth quarter of the calendar year or into 'twenty five that we.
Speaker Change: We should be able to.
Speaker Change: Support and grow with that growth as well into next year, but certainly at this point in time are prudent that we take a take a conservative approach to setting our guidance for next year.
Speaker Change: Thanks, Sean so that I'm, assuming you're meeting what you have very little assumptions of a return or a reacceleration of the biotech end market given all that commentary is that fair.
Speaker Change: Oh, no I I have hoped for but from a guidance perspective, let's Oh, what will it be conservative, let's see it start to occur.
Peru before it.
Speaker Change: Before we count on that happening.
Speaker Change: And then as a follow up I think you mentioned in your prepared remarks, Sean that you saw some slippage in renewals on the gastro plus can you provide maybe more color on that contract within our large pharma what was the decision there to not renew or the push out of the renewal can you just give us more color on what happened there on the cost on the gastro.
Speaker Change: Perfect.
Speaker Change: Yeah, you know that.
Speaker Change: So it's not a non renewals.
Speaker Change: Decision, it's a you know get the paperwork through and get the get the.
Documentation purchase order and I'll get that all done by August 31st.
Speaker Change: Our our funky fiscal year here August a lot of people are on vacation.
Speaker Change: In August and that's not an excuse but that sometimes is often difficult to get things closed.
Speaker Change: Only the only challenge of all one and the mix there.
Speaker Change: Fourth quarter, we did have.
Speaker Change: Our renewal situation, where we had.
Speaker Change: Any specific client that.
Speaker Change: Acquired a second company during the course of the year.
Speaker Change: And in fact, and as well close to one of their sites.
And so that was a situation, where we had three renewals come up.
Speaker Change: The original company of the acquired company and within that original company know their license configuration was site based and so in.
In that situation, which as you know when we look back over our history in terms of that differential between that 90 renewal rates on software.
Speaker Change: 3rd% what is that difference I mean, it's it's either companies going bankrupt.
Speaker Change: Bankrupt and departing the landscape or consolidation.
Speaker Change: And so we had one of those in the <unk>.
Speaker Change: Fourth quarter results are no slippage ones are you know the timing and you know.
Speaker Change: Aren't on takeaways of our book of business. If you will it's only those acquisitions scenarios that are you know that can be troublesome.
Speaker Change: Thanks for all that color really appreciate it.
Speaker Change: Sure.
Speaker Change: Thank you. Our next question is from Francois Brisbois with Oppenheimer <unk> Company. Please proceed with your question.
Francois Brisbois: Hi, Thanks for taking the question I'm just.
Francois Brisbois: It's a cute here I was just wondering if you can give us a little more explanation or color around that Tam doubling that you talk about its not necessarily biased stimulation play, but with proficiency here, how do you get to a doubling of the Tam and then you know I know you're still getting this acquisition are integrated but any other color on <unk>.
More M&A or is it one step at a time, if there's a big acquisition, let's get this one figure it out or at the time being.
Speaker Change: Sure Frank.
Speaker Change: Yeah, I mean the Tam.
Speaker Change: Incrementally the proficiency of the incremental 4 billion and as you know.
Speaker Change: Pretty evenly split.
Speaker Change: The split between the two markets or our assessment of what the what is the market for <unk>.
Speaker Change: Okay.
Speaker Change: Training activity and clinical trial.
Speaker Change: Trial space.
An estimate of what is spent in that area across our clinical trials.
Speaker Change: All phases, all therapies et cetera of course, specifically.
Speaker Change: Training aspect of a clinical trial and on the medical side.
Speaker Change: You know their their marketplace is twofold. It's it's it's it's more predominant in the.
Speaker Change:
Regulatory process pre approval process.
Speaker Change: And and in part as well sourced and.
Speaker Change: That's medical Communications agency work, that's done post approval.
Speaker Change: The commercialization process for a new drug market entry.
Speaker Change: Their businesses are skewed a little bit towards the regulatory process and so therefore, we we've calculated that that Tam in that scene.
Speaker Change: Disproportionate towards things like inventory mark without till the deal activity there.
Speaker Change:
Speaker Change: You know acquisitions are a continuous process in terms of the you know are working.
Speaker Change: Working in the landscape and.
Speaker Change: Following our companies that are on your radar and adding and deleting those that come and go.
Speaker Change: We've certainly you know are devoted to our.
Speaker Change: Our resources to where the integration process of our most recent acquisition.
Speaker Change: But you know.
Speaker Change: Our strategy is unchanged in terms of supplementing our.
Speaker Change: Organic growth with our with acquisitions.
Speaker Change: I'd say you know yeah. We're we're we're going to take a little bit of a breath and you know in terms of the bigger there.
Speaker Change: But it is not on the shelf and not active in.
Speaker Change: Any point in time.
Speaker Change: And should an opportunity arise that fits.
Speaker Change: Our criteria there.
Speaker Change: Certainly paccar that Oh at that opportunity and we will continue to do acquisitions. So we've gone from a you know we used to get a question. When are you going to do the next acquisition acquisition, Yeah. Because you haven't done one we've done one in each of the last two years or cadence is a I think good there.
Speaker Change: No no guidance that we'll do one in 2025, but certainly the underlying activity that did lead to that.
That is exactly.
Speaker Change: Thank you.
Speaker Change: Uh huh.
Speaker Change: Thank you. Our next question is from Constantine David with citizens JMP. Please proceed with your question.
Speaker Change: Thanks, Sean.
Speaker Change: Correct me if I'm wrong is this time of year you typically would.
Speaker Change: Look to us to flex price I'm, just wondering how that would look.
Speaker Change: Going forward in terms of you know how much price you would look to.
Speaker Change: The increase and how would that compare to last year.
Speaker Change: Okay.
Speaker Change: Yeah. It is.
Speaker Change: It is sort of are you know adjust the price list a timeframe of the year end.
Speaker Change: And.
Speaker Change: Our approach of this this year round.
Speaker Change: Somewhat similar to last year.
Speaker Change: Its outcome with similar to last year.
Speaker Change: Historically that a price increase can be.
Speaker Change: 5%, plus a sort of a level.
Speaker Change: Typically they don't draw on yielding 100% of that.
Speaker Change: Large clients.
Speaker Change: Or in particular market segments, Youre looking to discount to gain footholds.
Speaker Change: Two years ago, not last year not fiscal year 'twenty three.
Speaker Change: That's fiscal year 'twenty two.
Speaker Change: A little bit more aggressive.
Speaker Change: It was the start and I'll call it peak of unfortunately.
Speaker Change: Scenario macro environment.
Speaker Change: Environment and whatnot and it came back down in fiscal year, 'twenty, four and as we enter fiscal year 'twenty five.
Speaker Change: No relatively comparable to last year.
Speaker Change: Yeah.
Great. Thanks, and then I guess, just one follow up on <unk>.
Speaker Change: Operating expenses for the past few years.
Speaker Change: Sales in R&D growth is kind of occurred at a clip that exceed sales growth or are you going to start to see a little bit more leverage in fiscal 'twenty five on those line items.
Speaker Change: Yeah.
Speaker Change: No. We it's true we've invested in sales and marketing and R&D keep in mind that this past year.
Speaker Change: The re class, where we initiated at the beginning in the first quarter beginning of the year and reach out and re classing cost out of G&A into gross margin some of that's gone into sales and marketing and.
Speaker Change: And the R&D and overhead costs with all of the people that are working in those line items. If you will.
Speaker Change: But certainly incremental to that with the we've made investments that are I think are paying off a week.
Speaker Change: When I look to the execution and success we've had.
Speaker Change: And double digit growth and stepping up.
Speaker Change: Our growth in fiscal year 'twenty four.
Speaker Change: You know that in good part is due to those business development resources that we have Oh, we felt and it gives us the confidence when we make an acquisition like a proficiency acquisition that we have or the infrastructure on the business development side.
Speaker Change: To leverage those products are and services, new products and services going forward.
Speaker Change: So we will get more leverage but I think we are already getting the leverage out of the business development side.
Speaker Change: And on the R&D side, a great year with delivery of significant releases across.
Speaker Change: All areas of our software platform.
Speaker Change:
Speaker Change: <unk> has been delivered by that that R&D group, which.
Is supplemented with the benefit of the.
Speaker Change: Some tight corporate collaborations with a large pharma clients as well as the regulatory.
Speaker Change: Why aren't you may have noted that it was at a recent FDA was another 58 mm mm mm grants collaborations that we're engaged in.
Speaker Change: So you know overall.
Speaker Change: Overall, I think we've made some investments there in R&D and sales and marketing I think we're getting the benefit of everyone that benefit will accrue going forward that said overall, we're particularly focused in terms of getting the business.
Speaker Change: Back to historical profitability.
Speaker Change: Profitability levels at 35% plus.
Speaker Change: Adjusted EBITA level and I feel good in programs that we've initiated that will move us into that direction in 'twenty, five and I think will.
Speaker Change: Have the potential to accrue a benefit beyond that as well.
Yeah.
Speaker Change: That makes sense thanks, Sean.
Speaker Change: Okay.
Thank you there are no further questions at this time I'd like to hand, the floor back over to Mr. Sean O'connor.
Sean O'Connor: I think Sam Thanks, again, everyone for joining our call today and and your interest in Nf L. P M.
Speaker Change: I'll I'll note as well for those in terms of.
Sean O'Connor: Querying on market conditions and whatnot, we are wrapping up our participation in two two of the most significant conferences in our at least on the Bios emulation side. One is wrapping up today and another occurs in a couple of weeks.
Sean O'Connor: The a T S farm side 360 conference and.
Sean O'Connor: The Ache off conference next month.
Sean O'Connor: Significant conferences for us and.
I look forward to.
Activity in.
Sean O'Connor: Generates.
Sean O'Connor: And also on the horizon or conference attendance by myself at the Stephens Conference and the P. T. I M. Just Investor Conference a virtual conference I believe it is next month and.
Sean O'Connor: Hope to see many of you there.
Sean O'Connor:
Sean O'Connor: With that we'll close off the call and again, thanks for joining us today.
Sean O'Connor: Yeah.
Speaker Change: This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.