William Feehery: Yes, Mike, thanks for the question. It’s Will. I think that to be fair, there is a fair amount of turmoil going on in the end markets here. There’s certainly decreased level of funding activity in the smaller biotech space and some indications of some restructuring going on in some of our larger pharma companies and that probably does affect us by some amount that it’s hard to quite quantify. So we’re working through that part of the market. On the other side, we have a very good position in biosimulation, which through that turmoil continues to grow. I believe that we, as a company, are executing better. As you know, we did some reorganization around our services business and around a unification of our sales force.
So it can cover multiple products and services to the same clients. I don’t think that transition is fully reached its peak utilization or peak efficiencies that we can obtain, but we’re getting some good traction out of that. And so I think the execution has been better there. As we look forward, we looked really hard at our pipeline and our customer conversations. So we’re feeling like the trend line is — put it this way, the way you put it, it’s not an isolated point this quarter.
Mike Ryskin: And then if I could squeeze in a follow-up. I guess to kind of follow up on Dave’s question just now on 3Q spending and things like that. Just to put it another way, EBITDA percent came in a little bit lower. EBITDA margin came in a little bit lower than we had worked for. And I know that, again 3Q can often be a well point for the year and sometimes you have some quarter-to-quarter fluctuations. But just making sure is there anything beyond that to call out, just kind of working through the adjustments, especially with some of those onetime adjustments. It’s a little bit trickier to pass it. I just want to make sure there’s nothing unique about EBITDA in the third quarter that’s worth calling out?
William Feehery: Well, yes, let me start this one and then John may want to chime in. But I would just say that we’re very committed and excited about some of the investments we’re making in new technologies, and we haven’t cut those investments. I referenced artificial intelligence, and we’re also launching a lot of new products in QSP and in biosimulation. So despite the turmoil in the market, we believe in the long-term health of this and we’ll continue to invest through it. So I think there’s a little bit of reflection in our EBITDA margin for that. And John, you might want to chime in too.
John Gallagher: Yes. Yes, Mike, a couple of things to note. Like as you called out, there’s some one-timers in here. So — but if you strip out those and you adjust stock comp, keep in mind, stock comp return to the Q1 level in Q3. So — but if you strip all those way on an adjusted basis, what you find is that Q3 expenses, whether it be sales and marketing, R&D or G&A on a percent of sales basis, are consistent with what you saw in Q1 and Q2. So the quick answer is there’s nothing really to call out there when you strip away the adjustments.
Mike Ryskin: Thanks so much. Appreciate it.
Operator: Our next question comes from Max Smock of William Blair. Your line is now open.
Max Smock: Hey, guy. Thanks for taking our question. I wanted to start off just by drilling down on bookings a bit more. I know total bookings in the quarter were in line with your prior commentary about being flat quarter-over-quarter, but software was a little weaker than we expected and services better. So I know you reaffirmed your guidance for bookings being down low single digits in ’23. But just wondering if the math at all has changed in terms of bookings for each segment this year. Or maybe put another way, how are you thinking about bookings growth for software and services in Q4? And assuming things stay stable from here, what does that mean for bookings next year? .
William Feehery: Right. Yes. So listen, the software bookings in the quarter, as I mentioned earlier, the dynamics related to software had some Q2 pull-ahead effect and some push into Q4. But overall, when you look on a year-to-date basis, we’ve got double-digit software bookings growth. The trailing 12-month bookings for software are 13%. So those are all indicators of strength for the software business. As it relates to next year, Obviously, we’re not going to give guidance on this call. We will on the next one. But the thought there is we’ve got to focus on execution. You saw that in Q3. We believe the opportunity in biosimulation is firmly intact, and you can see that in our results. And then from an organizational standpoint, we’ve made some changes that will drive some acceleration. And then we’ve got a backlog that we’re working through as well. So all of those together, we think spells growth into ’24.
Max Smock: Okay. That’s good to hear. Thanks for the color. I guess, sticking with ’24 and you mentioned the backlog. Last quarter, you talked about actively assessing your existing backlog of projects, particularly in services. Just wondering if you could share some of the takeaways from this assessment. And just any context you can provide around how much you have in your services backlog currently? And how much of that backlog do you feel confident to convert the services revenue here over by the end of 2024.
William Feehery: Yes. Yes. Max, the good news on that front is that — as we look forward, our ability to convert that is going to be more meatful than what you saw in the quarter. Because when you look at the we grew services bookings on the quarter, which was great, but the services revenue was a decline year-on-year, and that’s predominantly due to what we saw happening in Q2 bookings. So we have confidence as we move forward that we’ll be able to be converting the bookings that we’ve been posting and the dynamic that we saw in Q2 and then the reversal of which we saw in Q3 is going to aid us as we move into next year.
Max Smock: And just to be clear in terms of your analysis of that backlog, right, have you had — I guess, in terms of like the cancellation rate, have you seen an uptick in that relative to maybe what you expected in services — or should we think about everything or at least the vast majority of stuff that you booked going back over the last couple of years is still being part of that backlog and still more just a matter of if not — sorry, more a matter of when if that actually ends up converting to revenue at some point?
William Feehery: Right. Yes. We have not had a material cancellations. So we still maintain from our perspective that it’s a slowness and the delay, particularly when you look at the Tier 1 customers. And so we saw some of that come back. Certainly, we saw average deal cut. So for example, when we looked at the performance in services bookings in the quarter, we see average deal sizes for Tier 1s and Tier 3s were both growing double digits. So that’s a positive sign as we look forward. We’re not really getting cancellations, but we do continue to see some delays and some slowness in the conversion, and that’s reflected in what you see in the Q3 numbers.
Max Smock: Perfect. Thank you.
Operator: Our next question comes from Joe Vruwink of Baird. You may now proceed.
Joe Vruwink: Great. Hi, everyone. I think in years past, you’ve mentioned October is normally a big month for Simcyp renewals and just engaging with the consortium members. I guess that’s still through a few questions. One, what did you see for software bookings. You’re talking about 4Q, but I’m wondering maybe how much of that is already in hand. And then I have a follow-up question.
William Feehery: Yes. So the momentum that we had coming out of Q3 is what we’re seeing in October is consistent. That’s what gives us the confidence to keep the guidance on bookings and revenue and down the P&L impact where we’re at. So as we look at October, that’s part of what prompted us to stay where we are with the guidance ranges.
