Q3 2024 Certara Inc Earnings Call
Today and thank you for standing by. Welcome to the St. Tara's third quarter earnings conference call. At this time, all certificates are in a list and only mode.
After the speaker's presentation there will be a question and answer session. To ask the question during the session you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is great.
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Speaker Change: Please be advised that today's conference is being reported. I would now like to hand the conference over to your first speaker today, David Deuchler. Please go ahead.
Speaker Change: We have a very chief executive officer and John Gallagher, Chief Financial Officer. Earlier today's guitar release is finished results for the quarter and it's a 10th or 30th to 20th or 24th.
Speaker Change: A copy of the press release is available on the company's website.
Speaker Change: Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements, and the actual results may differ materially from those expressed or implied in the forward-looking statements.
Speaker Change: Please refer to slide two in the accompanying materials for additional information, which you can find on the company's investor relations website.
Speaker Change: In their remarks and responses to questions, management may mention some non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are available in the most recent earnings release available on the company's website.
Speaker Change: Please refer to the Reconciliation Tables and the accompanying materials for additional information.
Speaker Change: This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 6, 2024. SIRTARA 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 will turn the call over to William.
William: Thank you, David. Good afternoon, everyone. Thank you for joining SOTAR's third quarter earnings call. John and I will begin with prepared remarks, and then we will take your questions.
William: During the third quarter, Sotara continued to benefit from our strategy of investing in the development of biosimulation for global drug development.
Speaker Change: Third quarter revenue of $94.8 million, increased by 11% compared with last year, while total bookings of $96.1 million increased by 13%.
Speaker Change: Among our Tier 1 Biopharma customers, we saw stability and some improvement in new business activity versus the second quarter, while bookings from our Tier 3 customers continue to grow on a somewhat improved funding environment and on our increased investment in sales and marketing.
Speaker Change: In early October, we closed the ChemAxon transaction, which further expands our biosimulation reach into the preclinical market.
Speaker Change: We are excited about the prospects of combining core capabilities of Camaxon software and data with Sertar's data infrastructure and biosimulation capabilities to create an end-to-end biosimulation platform.
Speaker Change: As we expand the serviceable market with Cam Axon, we will look to deepen existing customer relationships and develop new ones.
Speaker Change: Consistent with the plan outlined in our last earnings call, our biosimulation services achieved higher utilization during the quarter, which drove sequential improvement in our EBITDA margins.
Speaker Change: We see several positive indicators of biosimulation demand, particularly that we have a strong pipeline and a very high win rate. However, we have also experienced a lengthened decision-making process among many of our larger customers and have seen more discreet engagements compared with years past.
Speaker Change: Our experience in the regulatory services market has been different.
Speaker Change: where we are also achieving higher utilization rates, but market dynamics have been more challenging relative to our expectations earlier this year.
Speaker Change: As a result, we are revising our 2024 guidance modestly to reflect the changes that we have seen.
Speaker Change: Zatarra has a good regulatory services business with revenues expected to be 50 to $55 million this year and operating margins that are comparable to a traditional CRO.
Speaker Change: However, for some time, the growth profile of this business has diverged from our core biosimulation business.
Speaker Change: and the customer base has less overlap with our coarse biosimulation business.
Speaker Change: For these reasons, we have begun a review process to consider the long-term strategic options for the business.
Speaker Change: Please understand that we are at the beginning of this review process, and we are not going to be making any additional comments until the review is completed during the first half of 2025.
Speaker Change: Turning to the biosimulation and data-related businesses at Sertara, I'd like to take a moment to highlight the investments we've made over the past 10 months and their importance to our growth strategy.
Speaker Change: Earlier this year, we announced investments to strengthen our software product suite and broaden our commercial reach.
Speaker Change: In research and development, we steadily grew our software team with three key goals in mind. To accelerate the integration of artificial intelligence and machine learning into existing products.
Speaker Change: to accelerate the development of new products and the cadence of products updates.
Speaker Change: and to begin the process of integrating Sitara software into a more unified platform.
Speaker Change: We think of our software business as having three existing pillars centered around the SimCip, Phoenix, and Pinnacle21 products, which are core to our goal of increasing the broader adoption of biosimulation.
Speaker Change: We have also begun to implement a strategy of uniting these pillars into an overall platform through the introduction of the Sitara Cloud.
Speaker Change: The initial version of Certara Cloud was launched this year and provides easier access to our software and updates, increases awareness of Certara's entire platform, and it lowers IT and security costs for customers.
Speaker Change: As we move forward, Sitara Cloud will further unite our software pillars by integrating data storage and providing workflow and collaboration, which enhance the use of our biosimulation products and services across drug development stages.
Speaker Change: A recent acquisition of Camaxon furthers this strategy.
Speaker Change: Canaxon is a leading software company focused on chemical property calculation, search, research workflow, and in-silico simulation.
Speaker Change: It brings Sertar a complimentary customer base and a close-knit group of employees with a track record of success.
Speaker Change: We plan to create a fourth software pillar within Sertara by aligning ChemAxon closely with Sertara's D360 product, which is used today by over 6,000 life sciences users in the screening process for drug selection and optimization.
Speaker Change: This combination, which will be further tied into our SimCIF and QSP development, will create a very powerful tool for our customers to use biosimulation to select and optimize molecules.
Speaker Change: We also intend to fully leverage Sartar's other software investments by integrating this combined product offering into Sartar Cloud and Sartar's AI capabilities.
Speaker Change: Now, speaking of Sartar's AI capabilities, we have dramatically increased our ability to process data and scientific literature in the wake of the FIASA transaction.
Speaker Change: bringing on additional software developers to implement artificial intelligence across our platforms.
Speaker Change: Our previously announced launch of CoAuthor into the regulatory writing market is proving successful, with our internal testing indicating the product can generate the majority of a clinical study report and reduce the delivery time to a level that has generated significant customer interest.
Speaker Change: We have already begun to generate revenues with the product and we have a healthy sales pipeline.
Speaker Change: In sales and marketing, we took steps to build out our commercial infrastructure, bringing on global account managers and additional heads across several regions.
Speaker Change: Our sales team also grew inorganically as we brought in members from Applied Biomath and Pharmetics and are now integrating team members from ChemAxon.
Speaker Change: By adding experience across a variety of geographies and areas of expertise, we have implemented new best practices and evolved our commercial strategy to focus on large key accounts and on expanding our presence in the biotech market.
Speaker Change: This is an important and exciting time for Sitara, and I want to emphasize how Camaxon and our 2024 investments tie into our broader strategy.
Speaker Change: While it's still early days, it is difficult to understate the impact of this year's activities on Sartara's ability to drive biosimulation adoption.
Speaker Change: On the product and services side, we are bringing technology in-house that expands our serviceable markets further into drug discovery via ChemAxon.
Speaker Change: We've built out a software team that can create and validate models more efficiently using AI technology acquired from Viasa.
Speaker Change: We are integrating our products to form a single platform which will lower the technological requirements required to adopt our software and biosimulation.
Speaker Change: We are now leveraging investments in our commercial teams to execute an enterprise-style commercial effort to drive cross-selling and software license expansion.
Speaker Change: Zatarra has made big strides toward a broader, more interconnected and user-friendly suite of software products, supported by the proper commercial infrastructure to expand our wallet share among existing and new customers.
Speaker Change: We believe we are better positioned to drive long-term growth and biosimulation adoption today than we were 10 months ago.
Speaker Change: Now I will turn to some of our recent highlights from the third quarter. Mid-August, we launched version 8.5 of Phoenix, introducing several enhancements that reflect feedback from existing users and stakeholders.
Speaker Change: Notable new features include integration with the Sertara cloud, reporting enhancements for tables and plotting, and improvements to the precision of the Phoenix NLME population modeling tool.
Speaker Change: Additionally, towards the end of the quarter, Centaur's SimCip consortium celebrated its 25th anniversary at the consortium's annual meeting in London.
Speaker Change: In conjunction, for the first time ever, SimCip hosted an open day where non-consortium members were given the opportunity to join and connect with industry leaders in the PPPK modeling field.
Speaker Change: The event was a great success and we look forward to hosting similar events in the future.
Speaker Change: In our services group, one notable highlight in the quarter was our QSP collaboration with ICGNOS Glenmark Innovation, or IGI.
Speaker Change: which was published in Nature Cancer in September.
Speaker Change: IGI sought Suhtar's help in optimizing the first-in-human dosing of their candidate called ISB2001 as a potential treatment for multiple myeloma. Our QSP services team developed an innovative model to accelerate the speed at which ISB2001 was administered to patients.
Speaker Change: identifying an optimal dose that was significantly greater than the conventional starting dose.
Speaker Change: The model was accepted by the U.S. FDA and the Australian HREC.
Speaker Change: meaningfully impacting the opportunity for patients.
Speaker Change: We are proud of the team's accomplishments, which highlights the potential efficiencies and patient impact that can result from PPPK and QSP modeling.
Speaker Change: As we progress through the fourth quarter and into 2025,
Speaker Change: We are focused on uniting our investments in R&D and sales and marketing, the purchase of Tamaxxon, and our evolving commercial strategy to drive sustainable growth at Sertara.
Speaker Change: Through the first 10 months of the year, we have made significant progress on several fronts that have positioned us well to gain wallet share amongst our biopharmaceutical customers.
Speaker Change: We are entering the earlier stages of development through a well-established software acquisition.
Speaker Change: and we have continued to invest in our software innovation engine.
Speaker Change: With that, I will hand over things to John Gallagher to discuss our financial results in more detail.
John Gallagher: Thank you, William. Hello, everyone. Total revenue for the three months ended September 30th, 2024, was $94.8 million, representing year-over-year growth of 11% on a reported basis.
John Gallagher: and 10% on a constant currency basis.
Speaker Change: Software revenue was $35.9 million in the third quarter, which increased 15% over the prior year period on a reported basis and 14% on a constant currency basis.
Speaker Change: The growth in the corridor was driven by biosimulation software and PINNACLE 21.
Speaker Change: Ratable and subscription revenue accounted for 72% of third quarter software revenues, up from 68% in the prior year period.
Speaker Change: Software bookings were $34.8 million in the third quarter, which increased 28% from the prior year period.
Speaker Change: Trailing 12-month software bookings were $153 million, up 15% year-over-year. The software net retention rate was 108%, which is consistent with our long-term growth profile.
Speaker Change: Looking at our software bookings performance by tier, we saw very strong performance in both Tier 1 and Tier 3 customers driven by continued adoption of our software.
Speaker Change: Now turning to services revenue, which was $58.9 million in the third quarter, up 9% versus the prior year period on a reported basis, and 8% on a constant currency basis.
Speaker Change: Our services business continues to recover following a period of cautious spending among our customers.
Speaker Change: We were pleased to see improving performance in the Tier 3 customer base continue in the third quarter, while revenue performance among Tier 1 customers also showed some sequential improvement.
Speaker Change: Technology-driven services bookings in the third quarter were $61.3 million, which increased 6% from the prior year period.
Speaker Change: Trailing 12-month services bookings were $266.7 million, down 1% as compared to the prior year.
Speaker Change: In the quarter, our services bookings performance saw continued divergence between regulatory and biosimulation services.
Speaker Change: We were pleased to see an acceleration in our biosimulation services business on a year-over-year basis, as all three tiers of our biopharma customers accelerated their use of biosimulation services.
Speaker Change: Conversely, we saw further deterioration and weakness in our regulatory services bookings, which factored into our revenue assumptions for the fourth quarter.
Speaker Change: Total cost of revenue for the third quarter of 2024 was $37.2 million, an increase from $35.9 million in the third quarter of 2023, primarily due to a $0.9 million increase in employer-related expenses and a $0.7 million increase in software amortization.
Speaker Change: Total operating expenses for the third quarter of 2024 were $55 million, a decrease from $102.5 million in the third quarter of 2023, primarily due to a $47 million decrease in goodwill impairment expense.
Speaker Change: Sales and marketing expense increased versus the prior year due to higher employer-related expenses from recent acquisitions and planned investments in our commercial infrastructure.
Speaker Change: while general and administrative expense was lower due to decrease in the change in fair value of contingent considerations.
Speaker Change: As we have discussed in prior quarters, we have invested in research and development to accelerate and expand software efforts.
Speaker Change: where we have seen good initial success. We believe these investments are tracking to our expectations and we will continue to evaluate and invest in good opportunities moving forward.
Speaker Change: We have reprioritized some investments in sales and marketing to better align with the realities of our end markets. However, we saw strength across biosimulation bookings performance in the quarter and will continue to support new business opportunities in biosimulation where appropriate.
Speaker Change: Adjusted EBITDA for the third quarter of 2024 was $33.1 million, an increase from $28.8 million in the third quarter of 2023. Adjusted EBITDA margin was 35%.
Speaker Change: Wrapping up the income statement, net loss for the third quarter of 2024 was $1.4 million, compared to a net loss of $49 million in the third quarter of 2023, when we took a $47 million goodwill impairment in that period.
Speaker Change: Reported adjusted net income for the third quarter of 2024 was $20.3 million compared to $17.1 million for the third quarter of 2023.
Speaker Change: Diluted loss per share for the third quarter of 2024 was 1 cent, compared to a loss of 31 cents per share in the third quarter of 2023, with the variance again related to the Goodwill impairment last year.
Speaker Change: Adjusted diluted earnings per share from the third quarter of 2024 was $0.13 compared to $0.11 for the third quarter of last year.
Speaker Change: Moving to the balance sheet, we finish the quarter with $233 million in cash and cash equivalents.
Speaker Change: As of September 30, 2024, we had $296.1 million of outstanding borrowings on our term loan and full availability under our revolving credit facility.
Speaker Change: As a reminder, we closed the $90 million Camaxon acquisition in early October, subsequent to the end of the quarter.
Speaker Change: We are updating our guidance for the full year 2024 to reflect the impact from the Camaxon transaction as follows.
Speaker Change: We expect total revenue in the range of $380 to $385 million, representing growth of 7% to 9% compared with 2023.
Speaker Change: Revenue growth excluding Camaxon is expected to be in the range of six to seven percent for the year.
Speaker Change: We expect adjusted EBITDA in the range of $120 to $124 million.
Speaker Change: Fully diluted shares in the range of 160 to 162 million and a tax rate in the range of 25 to 30 percent.
John Gallagher: I will now turn the call back over to our CEO, William Feehery, for closing remarks.
William Feehery: Thank you, John.
William Feehery: To summarize our message today, we were pleased with the many exciting developments of Sitara during the third quarter, and we remain focused on executing our growth and profitability goals in 2024.
William Feehery: There's a lot to be excited about at Sertar as we advance biosimulation with our innovative technology.
William Feehery: Operator, can you please open the line for questions?
Speaker Change: 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.
John Gallagher: To withdraw your questions, please press star 11 again. Please stand by.
Speaker Change: Our first question comes from Jeff Garrow from Stevens Inc. Your line is now open.
Jeff Garrow: Yeah, good afternoon. Thanks for taking the question. Maybe we can flush out the demand environment a little bit more. It sounded like mostly favorable commentary on that end, but I want to ask how we should think about the intersection of the current demand environment for biosimulation, the typical end-of-year budget flush activity, and then the myriad specific go-to-market strategies that you discussed that you've been executing on. Thanks.
Speaker Change: Thanks, Jeff. I appreciate the question. It's a good question. So we have traditionally seen a budget flush.
Speaker Change: to some extent by our pharmaceutical customers in the fourth quarter. Based on our pipeline right now, I would say there'll be some degree of that this quarter, but it's always difficult to tell how much, and we didn't count on that in the guidance that we gave you.
Speaker Change: We are benefiting, I think, from our increased
Speaker Change: organization and investment in our commercial team. So that's certainly helping right now. And especially because I think that the
John Gallagher: what we're seeing in the overall, as far as overall market conditions is probably similar to what.
John Gallagher: and a number of other companies reported that, you know, it's...
John Gallagher: It's a little bit healthier than it was earlier this year.
John Gallagher: you know, biotech funding's modestly up and I would say tier one customers are
John Gallagher: are looking a little bit better than they were, but it's not a huge change. So I'd say that the change that, you know, the performance we're seeing is probably more a result of our investment and sort of just the general uniqueness and demand for biosimulation.
Speaker Change: Excellent. I appreciate that. And maybe just to follow up a little bit, could you help us understand how those various Sitara Cloud and commercial strategies are translating into different customer interactions? In other words, are you interacting with different buyers or are you finding it easier to unlock budgets? What's the kind of blocking and tackling that those strategies are yielding? Thanks.
Speaker Change: Yeah, thanks. That's a good question, too. So, Sartara Cloud is, it's still, you know, it just was launched earlier this year, but it's acting as kind of the overall platform glue across all of our products, and we've been, you know, we've been rolling that out gradually across our products this year.
Speaker Change: So, you know, it does, at the moment it does a couple of things. One is it lowers their IT costs because we can have, you know, we have single
Speaker Change: a single sign-on to access our products and it makes our...
Speaker Change: marketing discussions easier because it's easy for us to go into companies and talk about the products that they have and the companies that they don't have, track that and have those conversations. So we are seeing benefits from that. Hard to say exactly how much.
Speaker Change: But, you know, our software bookings have been healthy, and so I'll say that, you know, it's certainly helping on that side.
Speaker Change: You know, I think the other piece of it is...
Speaker Change: You know, it's always good to
Speaker Change: to make it easier to implement our products and, you know, using Sitara Cloud makes it easier for
Speaker Change: IT audits and security, you know, the security costs that particularly a lot of our larger customers are concerned about. So.
John Gallagher: If you can reduce those costs, people are willing to go through the upgrade cycle more frequently than they might otherwise. These things help us.
Speaker Change: kind of foster overall software growth, but they're helping, right? I mean, what's really driving software growth overall is that we've got unique software primarily focused on biosimulation. We've been investing a lot in new features, new products.
Speaker Change: and those things have caused, you know, their own demand.
Speaker Change: Understood. Thanks for taking the questions.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Max Smock from William Blair. Your line is now open.
Max Smock: Hey, good afternoon guys. Thanks for taking our questions. Maybe just a few more housekeeping questions on the ChemAx on
Max Smock: acquisition or the closing of that acquisition. Based on your guide, I just want to confirm, it seems like about $5 million in total revenue here in the fourth quarter. First, just confirming on that number, and then are you still expecting that to be about 90% software and about 10% services?
Speaker Change: Hi, Mac. Yes, $5 million is.
Speaker Change: is about the right estimate. So what we had disclosed previously is that it's about a 20 million dollar business so the 5 million is the right number to cook in and that's
Speaker Change: consistent with the non-chemaxon growth that we had said of six to seven percent on the guide. And yes, it's
Speaker Change: pretty much a software business, so the 90% estimate is the right number to have it.
Speaker Change: Okay, that's helpful. Thank you for that. And then we've heard a lot about a broad slowdown and discovery type work. Just wondering if you have any sense, I know it's early days with
Speaker Change: You all getting your hands on that asset. But just in terms of the outlook for ChemEx on revenue moving forward. And then on the margin side, can you just remind us how their software and services margin profile compares to kind of your legacy software and services?
Speaker Change: Yeah, so I'll start maybe and then...
Speaker Change: the growth profile. So we've said that we...
Speaker Change: Expect ChemXon to be able to grow consistent with how we've been growing our software business.
Speaker Change: And based on, you know, what we've seen so far and the work that we've done, we continue to believe that's the case.
Speaker Change: The margin profile is below that of Sertara, but we had said and would continue to say that
Speaker Change: We expect to be able to exit 2025.
Speaker Change: with a margin that's consistent with the corporate average certara margin right now.
Speaker Change: This is Bill, to answer your question about the discovery market. ChemAxon is a unique company. They have some very sticky products.
Speaker Change: that are regarded by their customers as providing very good value for the price.
Speaker Change: So they, we've, you know, as we've gotten into this, we've found that they have a
Speaker Change: you know, a healthy
Speaker Change: sales pipeline and a number of new products that have been launched totally independent of what we intended to do with this business. So we're pleased with that right now.
Speaker Change: But, you know, the overall strategy that we're implementing here is to use ChemAxon to answer
Speaker Change: questions about molecule selection using biosimulation that our customers have been asking us about for years. So ChemOxon fills an important strategic.
Speaker Change: position in the biosimulation story and product suite that we've got as we go forward. And so we think that beyond what they're doing on their own that there's going to be a lot of interest in tying this into the rest of Sartar's biosimulation.
Speaker Change: That's really helpful. Thank you for that, Bill and John. Maybe just one more quick one for me on the regulatory services piece, and I know it's early in the process there, but could you just remind us, give us some detail on the size of that regulatory services business, just to help us frame out what could be the impact of a potential divestiture as you go through your review process here.
Speaker Change: Yeah, Mac, so the the business is about 50 to 55 million dollars of revenue and we said that it would be like pharma services like margins so think of that in the context of about 20 to 30 percent is the way to size it.
Mac: Got it. Thank you for that, John. Appreciate you taking our question. Yep.
Mac: Yep.
Mac: Thank you.
Speaker Change: Our next question comes from Vikram Purorit from Morgan Stanley. Your line is open.
Speaker Change: Hi, everyone. This is Morgan on for Vikram. Thank you for taking your question. I wanted to learn a little bit more about the improvements that you're seeing with Tier 1 customers and what has changed from 2Q to 3Q now. Thank you.
Mac: So
Speaker Change: What we saw with Tier 1 is we saw some stability moving from Q2, where we had pressure, and so we saw some improvement there. On the software side of the business, we've continued to see very strong performance across the tiers.
Speaker Change: On the services side is where we had seen some of the pressure in Q2. We saw some of that resolve.
Speaker Change: into Q3.
Speaker Change: Most notably on Biosim services, which was then...
Mac: offset by some contraction in the regulatory services tier one performance.
Speaker Change: Okay, thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Michael Cherney from Lear, Inc. Partner. Your line is now open.
Michael Cherney: What are you seeing in terms of demand from tier one clients and maybe the smaller biotech customers?
Michael Cherney: peers have mentioned some disruption from large pharma customers and like sort of a hesitancy to pull the trigger for smaller projects in the biotech, smaller biotech world. Are you seeing any of that as well? Any color would be helpful. Thanks.
Speaker Change: Yeah, thanks for the question.
Speaker Change: So I think if we went into Q2, we had, you know, there's a lot of, there was a lot of restructuring in the pharma industry, particularly in tier ones this year, and that probably hit us as we've gone forward.
Speaker Change: I would say our sales pipeline is pretty healthy. We've seen a lot of projects come through in the second half of the year, but we are seeing a lengthening of time to close those projects.
Speaker Change: So I guess that gets to your point about a little bit of hesitancy. You know we think that as in past years you we will get some degree of effect of you know companies that have
Speaker Change: [inaudible]
Speaker Change: you know, that have projects in our pipeline.
Speaker Change: that wanna get that done before the end of the year. But like I said earlier, we haven't baked a lot of that into our guidance just to be conservative. Johnny.
Johnny: Yeah, the only thing I'd add to that is
Speaker Change: You know, the revision on the guide here takes out a lot of the seasonality that we might normally expect.
Speaker Change: which does come from tier one. So, you know, the end market environment.
Speaker Change: Great, thank you.
Speaker Change: Our next question comes from Michael Riskin from BofA. Your line is open.
Speaker Change: Hi, thank you for taking the question. And this is Avantika on for Mike. Could you provide any additional color on the reallocation of resources from your services business to your software business and how that's driving growth? And then given your software investments, are you seeing conversion from service customers to software? Thank you.
Speaker Change: So,
Speaker Change: On the first point there, we've certainly seen for software
Speaker Change: Our net retention rate has been consistent, in fact, on a year-to-date basis.
Speaker Change: Our NRR is 110, and so we're seeing good...
Speaker Change: renewal and expansion by our customers, then we're adding new logos, which is taking that up, and then we're getting a boost from.
Speaker Change: from M&A as well.
Speaker Change: So that, the deals that we did last year, that is.
Speaker Change: That's part of what's driving consistent performance in software, in addition to, of course, all the products that Bill had mentioned before that we're rolling out, and that's driving the performance.
Speaker Change: On the services side, so...
Speaker Change: You know, our services do, as a component of selling software, we are able to sell services, and that's where I mentioned the performance when you look at
Speaker Change: Biosim services in particular, we saw strong performance in Q3 in Tier 1 and in Tier 3 customers and Biosim services, which was then offset.
Speaker Change: by weak performance in regulatory services. And so, you know, that's a part of the story that we wanted to make sure we got out there. So we are seeing correlation between the strong software performance and biosim services.
Speaker Change: All right, great. Thank you so much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Kyle Cruz from UBS. Your line is now open.
Kyle Cruz: Thank you for taking the questions.
Kyle Cruz: Could you please talk about the uniqueness and demand for biosimulation that you mentioned earlier? What do you feel is driving kind of the strength in biosimulation versus, you know, and diversions from your regulatory writing business? Is it efforts by regulatory agencies to help promote biosimulation? Is it increased educational efforts by SIRTARA, such as what you mentioned earlier in opening up the consortium for SINSEP to non-members for educational purposes?
Speaker Change: Yeah, great. Thanks, Kyle. Appreciate the question. Well, I think one of the things that's really driving demand is that we've had a very sustained investment in expanding our biosimulation product suite, which has driven a lot more.
Speaker Change: capability over the last couple of years. But as we've said before, you know, biosimulation is favored by the regulatory agencies. It's becoming more of a...
Speaker Change: a, you know, an accepted
Speaker Change: technique, and you can see that in submissions of, you know, lots and lots of approved drugs today. So, you know, we have the backdrop of that where it's accepted by the regulatory agencies. We have our investment in biosimulation, which
Speaker Change: Thank you.
Speaker Change: and to implement it, you know, for specific, for more types of drugs than we could have earlier. And then I think the other thing that maybe helps us to some extent here is, you know, as pharma has gotten a little bit more
Speaker Change: interested in the cost side of things, that biosimulations, you know, is
Speaker Change: is basically lower cost than going out and running more clinical trials, so it drives more interest in learning about what we offer and how to best use it.
Speaker Change: Great, thank you. And then one quick follow-up. Could you speak to your exposure to small molecule versus large molecule drug development and any efforts you're making to expand biosimulation for large molecules?
Speaker Change: Yeah, that's a good question. We've said for a while that our
Speaker Change: Our footprint from the standpoint of the types of molecules we look at is a pretty good snapshot of what pharma is working on at any given time. So, as biomolecule research has picked up,
Speaker Change: over the last, I don't know, what do you want to say, 10 or 15 years, our percentage has also increased.
Speaker Change: Our tools, you don't answer, you don't ask necessarily all the same questions in biosimulation for small molecules as large as they do for large molecules, but our tools have features for both and certainly widespread use in both.
Speaker Change: Great. Thank you.
Speaker Change: Thank you
Speaker Change: As one final reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.
Speaker Change: Our next question comes from Luke Surgot from Barclays. Your line is open.
Luke Surgot: Hey guys, sorry jumping on late here so sorry if I repeat anything but just a quick cleanup on can you give us the M&A contribution to each segment from the quarter to revenue?
Luke Surgot: and any of the bookings there as well.
Speaker Change: Yeah, sure, so the.
Speaker Change: So, the reported total revenue was 11%, the organic was 6%.
Speaker Change: On software, it was 15 and 10. So you're seeing, you know, about 500 basis points, 500 to 600 basis points spread. And on services, the organic was 3%.
Luke Surgot: Then when you look at bookings,
Luke Surgot: On software, the reported was 28% bookings growth, and that was 25%, so very strong software quarter on bookings across all three tiers, as we had mentioned. And then the organic on services was a minus one.
Luke Surgot: OK.
Speaker Change: That's great, and then I guess just a kind of follow up on that from a visibility perspective
Speaker Change: I understand that the market is relatively soft here. You're still putting up really good core bookings on that.
Luke Surgot: What's the...as you're looking at the guide and the cut that you guys just did, like why...
Luke Surgot: implementation times and and like essentially that these are just function as a push out.
Speaker Change: No, I wouldn't think about it that way. Instead, we had baked in
Speaker Change: typical seasonality and to our original guidance from February.
Speaker Change: and which we had seen historically a pretty significant uptick, particularly related to services and Q4s of every year. But given the end market volatility that we've discussed on the call today, a lot of that surrounding the regulatory services tier one performance.
Speaker Change: is causing us to really remove that seasonality. And so that's the primary driver around the revision lower.
Speaker Change: Okay, great. And then just last one for me, on the regulatory services strategic update, just, you know, this has obviously been a business that struggled over the last year. It's starting to kind of pick up here. Just why now is the, you know, I understand that now might be the right time, but, you know, thinking about this, the portfolio, like why doesn't this fit in with the overall strategy going forward?
Speaker Change: Yeah, look, thanks for the question. Look, we've just done three biosimulation, primarily software focused acquisitions. So, you know, the biosimulation platform that we have is expanding a lot and that's causing, you know,
Speaker Change: Thank you. Bye.
Speaker Change: I would say...
Speaker Change: divergence in both sort of the strategic necessity of staying in the regulatory writing group and also just the businesses, as you pointed out, haven't been operating really on the same cadence for some time. So, you know, I'd say, you know, the direct answer to your question is, you know,
Speaker Change: I think what really prompted this is the, you know, we've made the last couple of acquisitions has really given us, you know, even more mass, critical mass in biosimulation and where we think that's going in the future, which has caused us to think about this.
Speaker Change: Gotcha. Gotcha. Makes sense. Thanks.
Speaker Change: Thank you so much. I am showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program and you may now disconnect.