Simulations Plus, Inc. (NASDAQ:SLP) Q2 2025 Earnings Call Transcript

Simulations Plus, Inc. (NASDAQ:SLP) Q2 2025 Earnings Call Transcript April 3, 2025

Simulations Plus, Inc. beats earnings expectations. Reported EPS is $0.31, expectations were $0.25.

Operator: Greetings, and welcome to the Simulations Plus Second Quarter Fiscal 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief — a question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded. It is now my pleasure to introduce, Lisa Fortuna from Financial Profile. Ms. Fortuna, you may now begin.

Lisa Fortuna: Good afternoon, everyone. Welcome to the Simulations Plus second quarter 2025 financial results conference call. With me today are Shawn O’Connor, Chief Executive Officer; and Will Frederick, Chief Financial Officer and Chief Operating Officer of Simulations Plus. Please note that we have updated our quarterly earnings presentation, which will serve as a supplement to today’s prepared remarks. You can access the presentation on our Investor Relations website at www.simulations-plus.com. After management’s commentary, we will open the call for questions. As a reminder, the information discussed today may include forward-looking statements that involve risks and uncertainties. Words like believe, expect, and anticipate refer to our best estimates as of this call and actual future results could differ significantly from these statements.

Further information on the company’s risk factors is contained in the company’s quarterly and annual reports and filed with the Securities and Exchange Commission. In the remarks or 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. Please refer to the reconciliation tables and the accompanying materials for additional information. With that, I’ll turn the call over to Shawn O’Connor. Please go ahead.

Shawn O’Connor: Thank you, Lisa. Good afternoon, everyone, and thank you for joining our second quarter fiscal 2025 conference call. The momentum we reported at the beginning of 2025 continued into the second quarter. We’re pleased to report total revenue increased 23% year-over-year and 5% on an organic basis, excluding the contribution from our Adaptive Learning & Insights and Medical Communication business units. Diluted EPS was $0.15, adjusted diluted EPS was $0.31, and adjusted EBITDA was $6.6 million or 29% of revenue. Turning to the macro environment, our operating environment remained unchanged from last quarter and in line with recent trends. Our customers are still taking a cautious, cost conscious approach to spending.

In our software business, which provides biosimulation infrastructure to our customers, we are seeing continued steady growth as it plays a critical role in our customers’ expanding use of biosimulation to improve their development efforts. While services spending picked up since the start of the year and we enjoyed a second consecutive quarter of robust bookings, clients have remained slow to initiate project starts. We have received several investor inquiries on potential impacts from recent federal cost cutting measures under the new administration. We see minimal risk related to National Institutes of Health and other academic funding sources. While we have leveraged NIH grants for certain R&D projects in the past, we have no current exposure to NIH.

Additionally, our software is provided free of charge to academic institutions, so we have no revenue risk associated with potential federal funding reductions. As we have consistently stated, our highly disciplined approach to executing effectively in challenging environments is a key operating strategy that has served us well over the past two years. At the same time, we are prepared to capitalize on any increase in customer spending as conditions evolve. Turning to our software segment. Our software performance was impressive with strong growth. Renewal rates remain at historical levels and new logo sales are tracking well even with the funding challenges some of the smaller biotechs are facing. Software revenue grew 16% in the second quarter of ’25, 8% on an organic growth basis, excluding the $1 million in revenue from the ALI and MC business units.

Our Quantitative Systems Pharmacology or QSP business unit led software growth this quarter. Its revenue surged by 89%, largely driven by a model license for atopic dermatitis. As a reminder, QSP’s quarterly results can be lumpy based on the high ticket price per license and a smaller pool of end-users. Our Cheminformatics or CHEM business unit, software revenue grew by 8%, driven by higher revenues from ADMET Predictor. Additionally, there were 10 new customers and seven upsells to existing customers during the quarter. In our Clinical Pharmacology & Pharmacometrics or CPP business unit, revenues grew 9% and we added 11 new customers and had two customer upsells during the quarter. Our Physiologically Based Pharmacokinetics or PBPK software revenue grew 1%.

In the second quarter, we had some renewal slippage for GastroPlus. However, these deferred renewals have already closed in the third quarter. GastroPlus added seven new customers and booked seven upsells with existing customers. Software revenue in our ALI business unit was $0.9 million, and software revenue in our MC business unit was $0.1 million. Overall, software revenue for these two new business units was in line with expectations. Moving to our services segment. Services revenue grew by 34% in the second quarter, yet was flat on an organic basis. While bookings in our services segment continued to be strong, these clients continue to pace, project initiation out to the second half of the year. This will result in a push of some service revenue to the back half of our fiscal year.

Services revenue was led by strong performance in our CPP and MC business units. CPP were services revenue increased 19%, and MC services revenue was $2.3 million. Our PBPK services revenue decreased 23%, reflecting the cautious pace of project initiation as previously mentioned. And our QSP services revenue decreased 7%. Services bookings during the second quarter were very strong, especially in our CPP and MC business units. And we ended the quarter with a backlog of $20.4 million, up 18% compared to the first quarter and up 13% year-over-year. With that, I’ll turn the call over to Will.

Will Frederick: Thank you, Shawn. To recap our second quarter performance, total revenue increased 23% to $22.4 million, including a $3.3 million contribution from the ALI and MC business units. Software revenue increased 16%, representing 60% of total revenue, and services revenue increased 34%, representing 40% of total revenue. Turning to the software revenue contribution from our products for the quarter. GastroPlus was 46%, MonolixSuite was 23%, ADMET Predictor was 17%, Pro-ficiency was 7%, and other products were 7%. For the trailing-12 months, GastroPlus was 48%, MonolixSuite was 20%, ADMET Predictor was 17%, Pro-ficiency was 7%, and other products were 8%. The trailing 12 month software revenue for the ALI and MC products only includes revenue since the acquisition of Pro-ficiency in June 2024.

With the Pro-ficiency short-form into Simulations Plus completed in January, we also rebranded the ALI training platform to Pro-ficiency to leverage the name recognition with our customers. During the quarter, our software customer renewal rate was 90% based on fees, and 84% based on accounts. The renewal rate based on accounts was in line with the prior year and the decline in renewal rates based on fees was primarily due to one large customer renewal that did not close until the third quarter. Given the size of that renewal, there was a more significant impact on the fee based renewal rate than on the account based renewal rate. Note that renewals which are recovered in a future quarter are not included within the calculation of our published renewal rates in the future quarter.

Average software revenue per customer for the quarter increased to $124,000 from $113,000 last year. On a trailing 12-month basis, our software customer renewal rate was 91% based on fees and 83% based on accounts, both generally in line with prior period trends. Average revenue per customer increased to $101,000 from $95,000 on a trailing 12-month basis. Shifting to our services revenue contribution by business unit for the quarter. CPP was 39%, MC was 25%, QSP was 19%, and PBPK was 17%. On a trailing 12-month basis, CPP was 40%, QSP was 26%, PBPK was 18%, and MC was 16%. Again, the trailing 12-month services revenue for the MC business unit only includes revenue since the acquisition of Pro-ficiency last June. Total services projects worked on during the quarter were $203 million and year-end backlog increased 18% to $20.4 million from $17.3 million last quarter.

The largest driver of the backlog growth quarter-over-quarter was in the CPP and MC business units. Total gross margin for the quarter was 59% with software gross margin of 81%, and services gross margin of 25%. On a comparative basis, total gross margin for the prior year quarter was 72%, with software gross margin of 88%, and services gross margin of 44%. The decrease in total gross margin was due to a $4.2 million increase in cost of revenues. The increase in software cost of revenues was primarily due to a $1.2 million increase in software related costs, including $0.8 million of amortization related to the Pro-ficiency acquisition and $0.4 million higher amortization of capitalized software costs. The increase in services cost of revenues was primarily due to a $3 million increase in service related costs for the acquired MC business unit and the reclassification of expenses from G&A expense to cost of revenues in connection with the prior year business unit reorganization.

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 17% of revenue compared to 11% last year. G&A expense was 20% of revenue compared to 30% last year and total operating expenses were 46% of revenue compared to 48% last year. Income tax expense for the quarter was $0.4 million compared to $1.2 million last year, and our effective tax rate was 12% compared to 23% last year. Lower effective tax rate was primarily driven by the tax benefit associated with disqualifying dispositions during the quarter. We now expect our effective tax rate for the fiscal year to be in the range of 21% to 23%. Net income for the quarter was $3.1 million or 14% of revenue compared to $4 million or 22% of revenue last year and diluted EPS was $0.15 compared to $0.20 last year.

Adjusted EBITDA for the quarter was $6.6 million or 29% of revenue compared to $7.1 million or 39% of revenue last year, and adjusted diluted EPS was $0.31 compared to $0.32 last year. The reconciliation of non-GAAP financial metrics to the relevant GAAP metrics is in our earnings release and on our website. Turning to our balance sheet. We ended the quarter with $21.4 million in cash and short-term investments. We remain well capitalized with no debt and strong free cash flow to execute our growth strategy. I’ll now turn the call back to Shawn.

Shawn O’Connor: Thank you, Will. Our strong second quarter results reflected solid performance in both our software and services segment. The team executed well in the first half of the year and our results are in line with our guidance despite the persistent cost constrained and limited funding environment that our customers have been facing for some time. Our ALI and MC business units continue to show good progress and in fact, we recently closed on a multi-drug project for [indiscernible] support and training with an existing MC client for just over $5million. Revenue from this engagement will ramp up during the second half of our fiscal 2025, with the rest to be earned over the course of calendar 2025. Moving on to our outlook for the balance of fiscal year 2025.

With our first half 2025 results aligning with our expectations, we are reaffirming our fiscal year 2025 guidance as follows: total revenue is expected to be between $90 million to $93 million, and we still expect ALI and MC to contribute between $15 million to $18 million as previously provided. Year-over-year revenue growth is expected to be in the range of 28% to 33%. Software mix between 55% and 60%, adjusted EBITDA margin between 31% to 33%, and adjusted diluted earnings per share of between $1.07 and $1.20. We expect total revenue for our third fiscal quarter to be approximately 25% of our fiscal year guidance range with a year-over-year growth rate of between 21% and 25%. We expect a sequential step up in revenues in our fourth fiscal quarter.

As a reminder, our guidance does not include the impact of any future acquisitions. I also want to reiterate our near-term priorities, which include continuing the ramp up of our ALI and MC business units, expanding cross selling opportunities, and driving towards our historical adjusted EBITDA margin target of 35% to 40% and corresponding profitability levels. We believe we are well positioned to achieve our goals this year and remain focused on executing our disciplined growth strategy to deliver long-term value to our shareholders. Thank you for your time today. And with that, I’ll now turn the call over to the operator for your questions.

Q&A Session

Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] And our first question comes from David Larsen with BTIG. Please proceed with your question.

David Larsen: Hi. Congratulations on the good quarter. Can you maybe just talk a little bit about the software organic revenue growth and the fee renewal rate declined to 90% from 94%. Just — I guess, what would the organic revenue growth rate for software have been had that account renewed this quarter? Thanks.

Will Frederick: Yeah. Thanks, Dave. The software organic growth was good this quarter, 8% from an organic basis, excluding the Pro-ficiency software contribution. The renewal rate, we lost a few points down to 90% renewal rate, on fees related to one large account that was renewed in the week subsequent to the end of the quarter. That was a six-digit renewal and you can sort of extrapolate from there.

David Larsen: Okay. That’s great. And then can you maybe just talk about — you mentioned a couple of times some clients might be reluctant to start new projects, but the bookings are good. But the software organic growth seems very good. Maybe just talk a little bit, how do I reconcile that? Like they’re buying the software, but they’re a little bit slow on implementing the service deals, but they’re signing contracts for the service deals. How do we reconcile that? Thanks.

Shawn O’Connor: Yeah. Our software licensing business, our software business is really providing infrastructure to our clients for their undertaking, their modeling and simulation deployment within their organization. As our clients tighten the belt and are cautious in terms of spending, but they’re not whittling away at the infrastructure that they’ve built and so the software renewal rates and the software business generally continues to perform buffered against that cost constraint environment. Their manageable side in terms of reducing costs or managing costs more slowly is in their service budget lines where they can contract and expand that with a little bit, more feasibility for quickness in terms of pulling back. Part of the service experience has been both in terms of their slow pace there, but also what we’re seeing is contracts that are being signed and those clinical trial related activities that may make up many of those projects are scheduled for later in the calendar year.

So I’d say over the last couple of years, we’ve seen them hold off and not contract until closer to when the project was going to initiate. Today, we’re seeing some contracts being signed for work effort that is scheduled to be initiated later in the year.

David Larsen: Okay. And then just one more before I hop back in the queue. I — my whole thesis is that biopharma needs your software solutions to increase the accuracy of the clinical trials that they actually start. They want more success rates and that’s going to increase their investments in the software. And that’s maybe why the CRO market is under a little bit of pressure, but we see good software growth coming from you. That’s my thesis. And then just lastly, before I hop in the queue, what are your thoughts on these tariffs? I think biopharma maybe for now got a pass, but if there are tariffs in the world of biopharma, how do you think that will affect your business? Thank you.

Shawn O’Connor: Yeah. I don’t know, I think that they feel that they’ve escaped maybe at the tariff level, but they’ve certainly been dealing with the IRA and other issues for some time which are focused on their business. The tariff scenario, pharma businesses are global entities manufacturing is dispersed around the world and so they could be subject to the tariffs at some point and have some impact. I just saw from an M&A sort of perspective recent tallies of significant increase in terms of asset development programs, molecules that are being developed, the acquisition of those assets out of China has stepped up tremendously off late. So there is a global dynamic that may be impacted by tariffs down the road that adds to the cautiousness, I would say, of many of our clients as they map out their futures here.

David Larsen: Okay. I’ll hop back in the queue. Congrats on a good quarter.

Shawn O’Connor: Thanks, Dave.

Operator: Thank you. And our next question comes from Scott Schoenhaus with KeyBanc Capital Markets. Please proceed.

Scott Schoenhaus: Hey, team. Thanks for taking my question. Wanted to touch on the services side. Clearly, you are seeing (ph) — just from Pro-ficiency, just wanted more color on these. Are these legacy or is that, (ph) are finally seeing re-ramping from last quarter in terms of demand for the MC services or these new logos? And then, Shawn, you mentioned some cross-selling at the end of your prepared (ph) the opportunity there? Thanks.

Shawn O’Connor: Yeah, Scott. You were checking in and out in terms of your call there, but I think I got the gist of the question. Pro-ficiency and Medical Communications contribution was good this quarter. On the Pro-ficiency side, their business, their software initiates its license upon clinical trial start. So this was a slow quarter in terms of clinical trial start with their book of business and outlook for the year is, in the range of our guidance that we gave previously. Activity is quite an active pipeline in that business segment. Medical Communications, had a very significant win. The client was an existing client of Medical Communications. We provided services to them in the past, but they — the business was a combination of some continuation of previous drug support, particular specific drug that they’ve been supporting in the past, but was most importantly, expanding it to a another drug entity that we will be supporting them with our Medical Communication services.

It’s a good example of a nice contract signed certainly will contribute to our back half of the year revenue, but a contract that extends through the entirety of the calendar year of 2025. So a contract that will contribute revenue this year, but also seeping out into next year. Your last point was with regard to cross-selling, which is a significant component of our strategy as we built over the years quite a portfolio of products and services, the opportunity to sell through to existing clients, more of our product suite and service capability obviously is a leverage point in terms of — versus acquiring new logos. Both are important, but our expansion of our average revenue per customer with existing clients is a significant leverage point for us and that continues to be a focus on our part now enhanced with the addition of the ALI and Medical Communication products and services.

Scott Schoenhaus: That’s very helpful, Shawn. I guess my follow-up would be on the preliminary kind of fiscal third quarter and the steep ramp-in the fourth quarter. Can you just walk through all the assumptions, as we think about how the year progresses going forward? Thanks.

Shawn O’Connor: Yeah. It’s a bit of a change as we’ve alluded to in terms of our seasonality, which typically saw peaks in the second and third quarter with a bit of a step down in the fourth quarter. Not to first quarter levels, but a step down in terms of fourth quarter. That traditional seasonality primarily driven by our book of renewal business on the software side where our renewing accounts were more larger part of the population in the middle two quarters of our year. The change and shift there is driven, A by — excuse me, more continuous flow of revenue from the acquired businesses, ALI and Medical Communications, which does not have that same profile in terms of seasonality as our software business and contributed to as well by what we’ve seen in terms of — as we entered calendar year ’25 and our step up in bookings with our clients on the service side, the scheduling, timing of those projects being more back half loaded than typical service seasonality of the past and therefore, I see a little bit of a level — leveling of our second, third and fourth quarter revenue contribution on a combined consolidated basis.

Scott Schoenhaus: Thank you.

Operator: Thank you. And our next question comes from Matt Hewitt with Craig-Hallum. Please proceed with your question.

Matt Hewitt: Good afternoon. Thanks for taking the questions. Maybe a couple on Pro-ficiency for starters. Maybe if you could talk a little bit about the pipeline and specifically what you’re seeing from a cross-selling opportunity standpoint? And then maybe — and as a follow-up or congenitally to that, what — was the $5 million win that you just signed, was that contemplated in the $13 million to $18 million that you expected from the Pro-ficiency business this year?

Shawn O’Connor: Yeah. I’ll work backwards, Matt. No, we haven’t — we didn’t change our guidance. So it adds to our Medical Communications contribution for this year, but doesn’t put us in a position where our expectations have increased in terms of the $15 million to $18 million from the combination of ALI and Medical Communications this year. As I said, it’s a recurring client. We’ve done work for them in the past. So it’s not entirely unanticipated business out of that segment of the business.

Matt Hewitt: And then as far as the pipeline is concerned, are you having some early success on the cross-selling front?

Shawn O’Connor: We’re having success in terms of filling the pipeline with new opportunities. The two business units, on the ALI side, it’s been identifying the timed clinical trial opportunities for them to engage in. And on the Medical Communications side, it’s — getting to know and establishing credibility there, introductions and networking. So I think we’ve been very successful in terms of upping the pipeline activity and seeing that bolus go through the snake, if you will, and expect that down the road, we’ll see that — that cross-selling contribution from the MC, ALI business units.

Matt Hewitt: Got it. And then maybe separately, regarding the contract starts on the services side, is there anything that you can do, maybe not so much from a pricing perspective, but is there anything that you can do to help your customers kind of speed that process up a little bit? I guess I look at it, if it ends up being more Q4 weighted, is there risk there that either they decide to hold off until they’re — until your Q1 or conversely, they say, okay, we’re ready to go, but you have everybody do that at the same time and you maybe don’t have the people and support in place to be able to run all of those programs. I’m just trying to think, is there anything that you can do to kind of speed that process up? Thank you.

Shawn O’Connor: Yeah. I’d — I’m not being facetious when I say, hey, everything that we do is trying to assist our clients in terms of getting to decisions more quickly, get to protocols, and clinical trial activity that is more assured of being successful a lot of that which we do is try to accelerate the programs. It’s not something that you can — we’ll give you a 10% discount if you start your clinical trial, a couple of months earlier or something of that nature, that’s not how — operates in terms of drug development. Are we prepared if we get the flood of green lights and starts in terms of projects? Obviously, there’s a ceiling to saying yesterday that question. But as we’ve communicated pretty consistently, I mean we’re poised to step up if the market picks up and the gates open in terms of spending in general or specifically with regard to those things that we’ve contracted for in our backlog, our ability to respond is not unlimited, but A, I’d love to be in that position.

And B, I don’t think we’d have an issue in terms of responding to that sort of demand.

Matt Hewitt: Got it. All right. Thank you very much.

Operator: And our next question comes from Max Smock with William Blair. Please proceed with your question.

Christine Rains: Hi. It’s Christine Rains on for Max Smock. Thanks for taking our questions. So kind of building on the last question, I appreciate the commentary you gave on services visibility. So just assuming these bookings burn as you contemplate in the second half, how much of second half services revenue do you have in hand today versus how much do you still have to go out and win?

Shawn O’Connor: Yeah. As is typical, I mean we map out the backlog and I don’t recall, we usually are running at about 90% to realizable in 12 months. So that extends beyond our year-end. But obviously our detail reflects the timing and schedule of what’s in the next six months. And that’s not a number that we’ve typically disclosed in the past, but our characteristics today are no different than they have been in the past, in terms of what needs to come out of backlog and what needs to be booked and build in the second half of the year.

Christine Rains: Okay. Thanks. And turning one — kind of disruption side of things at the FDA. Do you see any impact from the recent layoffs and turnover at the FDA? And if there’s any adoption on biosimulation moving forward just in general, are you losing people who are pushing for adoption of biosimulation and therefore accepts — acceptance? And are you worried there at all that might cause kind of a stall out in biosimulation adoption?

Shawn O’Connor: First and foremost, it’s very disruptive and distracting and people’s speed of work effort is no doubt impacted at the FDA. I would point out that most of the drug development approval process interaction with drug sponsors and the approval of drugs is funded through fee based sources and not funded by federal funding. So it’s the other areas outside of drug development and certainly within drug development, there is impact of the federal funding cuts, but they are in the research and leadership and so on and so forth, the drug development approval process is funded primarily through fees. So a difficult environment, does it conceptually reduce support for biosimulation? No, I don’t think it does and their support has always been positive and a contributor, but this is not a, early-stage advocacy for biosimulation out of the FDA to start adoption in the industry.

The wheels of adoption are flowing and motivated by the significant impact that we can have in terms of efficiency and time and cost and drug development. And so disruptive, no doubt distraction and not without its concern, but does it slow down the adoption of biosimulation? Yeah, I don’t think it’s a big speed bump in that regard. (ph)

Christine Rains: Great. Thanks. That makes sense. And then last one for us. I know it’s very early, but just trying to get a hand on how you’re thinking about the range of outcomes for fiscal 2026. Just from a high level, given the macro headwinds that are impacting large pharma, should we think about the best case for next year being more of the same as what we’re seeing in fiscal 2025?

Shawn O’Connor: Well, I get the crystal ball out here, Christine. Yeah, I think the biggest impact is the market environment. And do we get a settling out of the challenges? Do we see a sorting out and more normal flow of development activities. I think our software business is insulated from these as we’ve seen over the last couple of three years and we’ll continue to see good growth there. Can we see an uptick and perhaps more consistency on the service side? The biggest impact is really going to be the market environment there.

Christine Rains: Great. Thank you so much.

Shawn O’Connor: Sure.

Operator: Thank you. And our next question comes from Jeff Garro with Stephens. Please proceed.

Jeff Garro: Yeah. Good afternoon. Thanks for taking the questions. I wanted to ask about the January press release announcing the PBPK partnership with the Enabling Technologies Consortium that has some key large pharma members. So a few to throw at you here. How long was this in the works? What are the possibilities to expand over time? And how should we think about timing of deliverables for this partnership?

Shawn O’Connor: Yeah, Jeff. I think it’s a project that extends out for 12 or more months of that nature. And it’s a review the process or engagement process prior to coming to its conclusion was probably a six month window of time in terms of pulling together the consortium and players that are involved and working towards the agreement. So again, we’ve historically looked for opportunities like this. It’s a tremendous means to develop technology that ultimately lands into our product, GastroPlus in this case and is brings us the expertise of the partners that are involved, the data, that can be provided and the advancement of the technology and capability of our GastroPlus product enjoys the benefit of that.

Jeff Garro: Great. Appreciate those comments. And wanted to ask a more discrete question around Pro-ficiency and just how we should think about seasonality by revenue line there. Slightly surprised to see a quarter-over-quarter decline in the software revenue attributed to Pro-ficiency and then also thinking through that larger $5 million contract that in the back half of the year, I believe will contribute to the services that we would allocate to that still to the proficiency acquisition? Thanks.

Shawn O’Connor: Yeah. The Pro-ficiency acquisition and its two components now as we manage ALI and MC. The ALI quarter-to-quarter stepped down not unanticipated — anticipated based upon, again, it’s type 2 clinical trial starts. And as we looked at the project work, the pipeline, if you will, and anticipated that second quarter was not a robust startup quarter for them and anticipate that will pick up in three and four. Medical Communications, again, they historically are kind of — first quarter is a slow quarter for them. In terms of revenue drive from a seasonality perspective and it builds second, third, and fourth quarter. That’s a — as opposed to the bookings, which typically are higher in the fourth and first quarters, and then that flows into the second, third and fourth quarter revenue flow for Medical Communications.

And enhance, with a little differing pace of business on a consolidated basis combined with SLP legacy revenue sources and it has that effect of changing our seasonality from a low first quarter, up second, and third quarter, and down fourth quarter to as I described, a little bit more contribution even keel second, third, and fourth quarter and even as we anticipate now a little bit of an uptick, but not great uptake in the fourth quarter.

Jeff Garro: Understood. Thanks for taking the questions.

Shawn O’Connor: Sure. Thanks, Jeff.

Operator: And our next question comes from Constantine Davies with Citizen. Please proceed with your question.

Constantine Davies: Thanks. Appreciate the color on the revenue cadence 3Q to 4Q in terms of the step up, but is that consistent with how should we — how should — we should also be thinking about EBITDA as well?

Shawn O’Connor: Yeah. Our expense load is linear, but much — no seasonality to it. So as we get into the back half of the year as those revenues tick up, we see that flow through to EBITDA as well.

Constantine Davies: Okay. And then in the second quarter, the sales and marketing line, a pretty sharp step up. Is that headcount addition or some other type of spend at work there?

Shawn O’Connor: I’ll ask Will to comment, but I don’t think it’s headcount driven, but conference cost driven. But Will, you’ve got maybe better visibility to the details there.

Will Frederick: Yeah. You are spot on. It’s timing of conferences and when they occur in the year. So it’s usually a little bit low in Q1 when we were running 15% of revenue for sales and marketing, and this quarter, 17% just conference timing.

Constantine Davies: Got it. That makes sense. And then lastly, Will, I heard you kind of reaffirm that 35% to 40% margin objective. And I guess, how much of that is dependent on an inflection in the macro environment? That is to say, if you can kind of keep grinding out this level of organic growth, is that something that’s within reach in the next year or so? Or does it again really hinge upon the macro factors kind of changing a bit?

Will Frederick: Yeah. I’ll jump in there. Yeah. We’ve operated at that level in the past, and that’s our objective to get to it, at whatever revenue growth level we’re looking at, its achievement is contributed to by both and revenue growth levels, but more significantly by management in terms of our costs. Our costs in capacity — matching capacity to top line service revenues, improvements that we’re making in terms of the service organization overall, their use of AI. As an example, the impact in terms of the advancement of AI tools and the development of the Pro-ficiency training modules. All of these come together to contribute and really the bigger drivers on the expense side, not necessarily on the revenue side.

Constantine Davies: Thank you.

Shawn O’Connor: Sure.

Operator: Thank you. And our next question comes Francois Brisebois with Oppenheimer. Please proceed with your question.

Unidentified Participant: Hi. This is Dan on for Francois. Thanks for taking our questions. I guess firstly on the 89% growth in QSP due to the addition of atopic dermatitis. Could you add some color on the customer profile here? Are these mostly existing clients or new customers working in the atopic dermatitis space? And related to that, how should we be thinking about QSP growth moving forward? And are you sharing at this time? What other indications you see as additional opportunities for QSP? Thanks.

Shawn O’Connor: Sure. Yeah. In this case, the QSP model of this nature is a pretty healthy ticket item. This is a license that can be 0.5 million or more in size. And so as we’ve always indicated, they are more discrete in terms of their occurrence. They don’t occur every quarter, if you will, although we’ve had success in terms of QSP, therapeutic license, disease model licensing in each of the first two quarters this year, which has led to that robust growth rate on the QSP software side. The nature of them is usually two large pharma accounts and underneath the large disease models, we’ve got smaller licensing that takes place for DILIsym software, as an example and that can be and across large, medium-sized pharma, biotech as well.

So on a forward basis, it’s best to look that in annual year-over-year growth of the haphazard large license size, if not — I wouldn’t project out 89% growth for QSP, but QSP software disease model licensing is a very good growth area for us. And our smaller license will be more consistent on a quarterly basis. And hopefully on a year-over-year basis, we’ll see good growth from the large disease models just on a quarter-to-quarter basis. It’s not so consistent.

Unidentified Participant: Thank you. Congrats on the quarter.

Shawn O’Connor: Sure.

Operator: Thank you. And with that, there are no further questions at this time. I’d like to turn the floor back to Shawn O’Connor for closing remarks.

Shawn O’Connor: Well, thanks again everyone for joining the call today. In the next few months, we’ll be attending some important industry events, including 20th Annual Drug Discovery Chemistry Conference in April, a key event for our Cheminformatics business and the American Society for Clinical Pharmacology and Therapeutics, their annual meeting is in May. And I’m currently here in Boston at the Bio-IT World Conference Expo. In the financial community arena in May, we’ll be attending the 22nd Annual Craig-Hallum Institutional Conference in Minneapolis, and as well the JMP Citizens Medical Devices and Healthcare Services Forum again back here in Boston in June. I hope to see many of you there. And I appreciate your continued interest in Simulations Plus. Thanks a lot, everyone.

Operator: Thank you. And with that, that does conclude today’s conference call. We thank you for your participation. You may disconnect your lines at this time.