Simulations Plus, Inc. (NASDAQ:SLP) Q4 2023 Earnings Call Transcript

Simulations Plus, Inc. (NASDAQ:SLP) Q4 2023 Earnings Call Transcript October 25, 2023

Operator: Greetings, and welcome to the Simulations Plus Fourth Quarter Fiscal 2023 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. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Tamara Gonzales from Financial Profiles. Thank you. Ms. Gonzales, you may now begin.

Tamara Gonzales: Good afternoon, everyone. Welcome to the Simulations Plus fourth quarter and fiscal 2023 financial results conference call. With me today are Shawn O’Connor, Chief Executive Officer, and Will Frederick, our Chief Financial Officer of Simulations Plus. 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 page at www.simulations-plus.com. After management’s commentary, we will open the call for questions. As a reminder, 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.

There can be no assurances that these will actually take place. So our 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. With that said, I will turn over the call to Shawn O’Connor. Shawn?

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Shawn O’Connor: Thank you, Tamara. Good afternoon, everyone, and thank you for joining us today to discuss our fourth quarter and fiscal 2023 results. We delivered strong revenue and earnings results for fiscal 2023, and I’d especially like to acknowledge our team’s impressive execution on building strong customer relationships. Our team’s effort and dedication throughout the year while navigating a challenging environment helped to drive growth and demonstrated the strength of our customer-centric business model. Conditions in our market remain similar to what we have spoken to over the past several quarters. We continue to see a slowdown from small biotech customers who have been impacted by funding scarcity that has in turn affected renewal rates in this segment.

Purchasing from large pharmaceuticals also remains delayed, driven by macroeconomic uncertainties and conservativeness. That said, these challenges were offset by our ability to up-sell and to pass on price increases throughout the course of fiscal 2023, helping us to achieve our guidance targets for both revenue and adjusted diluted earnings per share for the fiscal year. The underlying fundamentals of our market are resilient. As such, we believe the slow pace of investing in modeling and simulation that we have seen over the past few quarters will eventually reverse given tremendous needs in drug development and the essential need for pharmaceutical companies to find faster, more efficacious ways to bring drugs to market. We anticipated these challenges last year when we provided our fiscal 2023 guidance for revenues to grow 10% to 15%, and we met that guidance, delivering 11% revenue growth for fiscal 2023.

Based on early anecdotal customer feedback we have been receiving, we are cautiously optimistic as we enter fiscal 2024. We are cautiously optimistic as we enter fiscal 2024, as we have seen a slight uptick in biotech funding and budget cycle optimism at some large pharmaceutical companies, but still not to the levels we’ve seen this story. Against this backdrop, our revenues and earnings were in line with our expectations. Fourth quarter revenues of $15.6 million were up 33% over this time last year, driven by a 59% increase in software revenues with services up 8%. And for the year, total revenues were $59.6 million, up 11%, driven by software growth of 12% and services of 8%. Turning to profitability. Gross margins and adjusted EBITDA remained solid.

Fourth quarter gross margins were 78% and for the year were 80%, reflecting a favorable mix of higher-margin software sales and our ability to pass along price increases. Adjusted EBITDA was 31% of revenue for the fourth quarter and 35% of revenue for the year. Net income in the fourth quarter was $534 million or $0.03 per share. Adjusted net income for the quarter was $3.7 million or $0.18 per share. For the fiscal year, net income was $10 million or $0.49 per diluted share, and adjusted net income for the fiscal year was $13.8 million or $0.67 per diluted share. This is at the high end of our $0.63 to $0.67 fiscal 2023 guidance. I’m very proud of the results our team delivered for both the quarter and the year. Moving on to our software segment’s performance.

Software revenue increased 59% for the quarter and 12% year-over-year. Our renewal harmonization initiative to simplify and align contract renewals played out as expected and is essentially complete, and we do not anticipate future occurrences to have the same impact on quarterly revenue flow in fiscal 2024. We now have greater visibility into our revenues and with contract harmonization now embedded in the normal course of our business process, we expect that both Simulations Plus and our customers will see the benefits going forward. There will, however, always be accounts that become candidates for harmonization during any year as we up-sell additional licenses. Our software revenue renewal rate in the fourth quarter was negatively impacted by several non-renewals as a result of M&A activity in our client base and lower purchasing in pharma, biotech and CRO markets.

Additionally, a couple of QSP model license were not renewed due to program cancellations. GastroPlus in our PBPK business had a strong quarter. Revenues increased 76% for the fourth quarter and 11% for the year. The strong growth in the quarter was largely due to the shift in contract renewals for the fourth quarter. GastroPlus was referenced to 22 peer-reviewed journal articles and added 10 new customers. The team also booked 11 commercial client up-sells. ADMET Predictor, our AI-powered solution in Chem Informatics business saw revenues increase 46% in the quarter due to the shift in contract renewals. The team booked five upsells during the quarter and added six new customers. For the year, ADMET Predictor revenues grew 6%. Revenues for Monolix Suite, one of the most user-friendly tools and pharmacometric modeling increased 18% in the quarter, thanks to five customer up-sells and the addition of seven new customers in the quarter.

For the year, Monolix Suite revenues grew 15%. During the fourth quarter, our software team held a highly successful PK analytics summer school. This program educated over 450 scientists from 40 countries and serve to increase community awareness of the benefits and features of this user-friendly validated tool for non-commerce mental and compartmental analysis and bioequivalent evaluations. This event has supported growing attention and leads for Monolix Suite in the NCA scientific community. Looking at our Services segment, revenues grew 8%, both for the fourth quarter and for the year, representing 40% of total revenues and completed 201 projects. Services is entering the new fiscal year with a healthy backlog of $20 million, 25% higher than this time last year.

The backlog increase is primarily due to the investments we’ve made in sales and marketing, the addition of ImmuMetrix and the exemplary efforts of this team. PKPD services revenue was down 1% in the fourth quarter and increased 10% for the year. During the quarter, PKPD saw excellent bookings that contributed to overall growth. During the fourth quarter, fixed price projects versus time materials, garnered the majority of billable hours and had some effect on revenue growth. With the exception of this quarter, the trend for higher time and materials as a percentage of projects would appear to likely continue into fiscal 2024. This is based upon the nature of the backlog as we enter the year. The revenue benefit of time and materials as compared to fixed price projects is that these projects typically bring higher margins and have contributed to the growth of services margins to reach the mid-60s and above.

QSP/QST revenue grew 60% for the fourth quarter and 1% for the year, benefiting from our acquisition of ImmuMetrix in terms of revenue contribution. PBPK services revenue was down 1% in the quarter but up 22% for the year. Although the fourth quarter was impacted by lower billable hours related to temporary staffing availability related to life events, the team saw excellent growth for the year. Our outlook for PBPK services growth remains strong and staffing hours are expected to return to normal as we start the new fiscal year. Services had a good year. We recruited top talent, hired 14 new scientists for the year and saw strong retention amongst our talent pool. We also added 13 in the ImmuMetrix acquisition. We also had some notable highlights in the quarter.

Our QSP liver study safety tool was cited in a public key public document this summer. The FDA cited [ph] ViliSom results in their public medical review documents as part of identification and justification of the proper dose range for a subsequent and successful Phase III study that led to approval of a likely blockbuster drug. Our QSP team also completed some very important and large projects with large pharma partners in multiple myeloma and pulmonary fibrosis that are already leading to follow-on work and license requests with the same clients. These projects emphasize the compelling value we provide to our clients when we pair our software solutions with the expertise provided by our services consultants. We supported a client submission of new dissolution specifications, which were accepted by the EMA.

The GastroPlus model was developed across multiple dose strengths of a commercial formulation and applied to support the development of a bio-predictive dissolution method. With this dissolution data in hand, a safe space was established and used to justify dissolution acceptance criteria, which was wider than the type allowed specifications in the regulatory guidance segments. The EMA accepted the GastroPlus modeling results the estimated return on investment from the regulatory flexibility using a GastroPlus PBPM approach, a range from 12 to 45 times greater than the alternatives, which included running a clinical bioequivalence trial or doing nothing and wasting 10% of produced batches due to out-of-scope specifications. We supported a first-in-human dosing recommendation for a client that resulted in an investigational new drug, or IND approval.

In this project, animal PK data was utilized to build PBPK models to predict systematic and gastrointestinal concentrations for a new GI disease therapy. The validated PBPK model was then translated to humans to simulate local and systemic exposure and optimize the dosing recommendations needed to achieve target therapeutical levels in the colon and blood. The results were incorporated into the company’s IND filing with the FDA and played a critical role in its regulatory acceptance to proceed with the Phase I trust. As an example of the critical benefit our team of expert consultants provides, the client utilized its gastros software to build and submit a model in support of a bio-waiver request for a bioequivalence trial. The global agency review was harsh, and the request was rejected.

After resubmission, following the expert guidance from our scientific experts. The agency responded with minimal questions, which will quickly address resulting in the model being accepted in the bio-waiver cranes. These are just a few examples of the value-creating work our team delivers and is a testament to the significant value of our business model. Our customer-centric culture of innovation is driving results, both for our customers and for our results. Looking ahead, we remain committed to our strategy that combines organic growth, operating leverage and inorganic growth to create long-term value for our shareholders. This includes internal investments in product R&D, employee recruitment and retention and enterprise technologies. From a corporate development perspective, we will continue to evaluate M&A and strategic investments that are in line with our criteria.

While we have seen some positive sign surface in our market, we are setting guidance based upon a status quo outlook. For fiscal 2024, we expect revenues to increase in the range of 10% to 15% or $66 million to $69 million. From a mix perspective, we expect software to contribute 55% to 60% of revenues and services to contribute 40% to 45%. — reflecting the increased services revenue from ImmuMetrix. Further, we are guiding to diluted earnings per share in the range of $0.66 to $0.68 or an annual increase of 35% to 39%. And with that, I’ll turn the call to Will.

Will Frederick: Thank you, Shawn. We had another strong quarter with total revenue increasing 33% to $15.6 million, with software revenue up 59% and services revenue up 8%. Software revenue represented 60% of total revenue for the quarter. For the fiscal year, total revenue increased 11% to $59.6 million, comprised of a 12% increase in software revenue and 8% increase in services revenue. Software revenue represented 61% of total revenue for the year. Total gross margin for the quarter improved slightly to 78%, benefiting from strength in the software segment. Software gross margin increased to 89% from 86% last year, while services margin decreased to 62%, primarily due to the addition of ImmuMetrix. Total gross margin for the fiscal year was flat at 80%, with software gross margin at 90% and services margin at 65%.

With the addition of ImmuMetrix, our overall gross margin may be impacted for fiscal 2024 compared to fiscal 2023. Now, turning to software for the quarter. GastroPlus represented 54% of software revenue. Monolix Suite was 15%. ADMET Predictor was 21% and other software was 10%. For the fiscal year, GastroPlus represented 54% of software revenue. Monolix Suite was 19%, ADMET Predictor was 19% and other software was 8%. For the quarter, our customer renewal rate declined to 85% based on fees and to 80% based on accounts. Also for the quarter, average revenue per customer increased to $88,000 from $65,000. For the fiscal year, our customer renewal rate declined to 92% based on fees and to 82% based on accounts. Average revenue per customer for the fiscal year increased to $126,000, up from $110,000 last fiscal year.

While the lower renewal rates are primarily driven by non-renewals from smaller biotech customers, one resulting benefit we are experiencing is an increase in average revenue per customer. Shifting to our services business, the services revenue breakdown for the quarter was 39% from PKPD services, 37% from QSP/QST services, 20% from PBPK services and 4% from other services. The services revenue breakdown for the fiscal year was 45% from PKPD services, 25% from QSP/QST services, 23% from PBPK services and 7% from other services. As a reminder, other services consist primarily of the regulatory services we provide customers to help them meet global regulatory compliance and quality requirements. We also provide comprehensive learning services focused on modeling and simulation training with a variety of options to help our customers succeed.

Total services projects worked on during the quarter increased to 201 compared to 196 last year and year-end backlog increased to $20 million compared to $16 million last year. Anticipated revenue from backlog within 12 months remains around 70% to 80%. Turning to our consolidated income statement for the quarter, we saw an increase in total R&D costs primarily due to the increased investment in the development of our software products, the increased cost of ImmuMetrix for the quarter and from a general increase in personnel costs. Total R&D costs in the quarter increased to $1.8 million compared to $1.7 million last year. R&D expenses were $1.1 million compared to $0.8 million and capitalized R&D was $0.7 million compared to $0.9 million. SG&A expense for the quarter increased by 51% to $11.5 million or 73% of revenue compared to $7.6 million or 65% of revenue last year.

This increase includes $1 million with M&A costs, a $1.6 million compensation expense for ImmuMetrix related to its acquisition, an impairment charge of $0.5 million for discontinuing the trade name and $1.3 million increase in personnel costs related to increased headcount and higher compensation costs. Excluding these expenses, SG&A expense would have been $8.4 million or 54% of revenue for the quarter. Income from operations resulted in a loss of $0.3 million for the quarter due to the M&A costs, ImmuMetrix compensation expense and impairment charge previously mentioned. Excluding these expenses, income from operations would have been $3.4 million or 22% of revenue for the quarter. Other income was $0.4 million this quarter versus $0.2 million last year due to returns from higher interest rates on our investment portfolio.

Other income also included a $0.7 million accounting charge for the change in fair value of contingent consideration for the ImmuMetrix earn-out. For the quarter, income tax benefit was $0.5 million compared to expense of $0.1 million last year. Net income for the quarter decreased 44% to $0.5 million and diluted earnings per share decreased to $0.03. Adjusted EBITDA increased to $4.9 million, and adjusted EBITDA margin was 31% compared to adjusted EBITDA of $2.5 million or 22% margin last year. Adjusted diluted earnings per share for the quarter was $0.18 compared to $0.06 last year. We calculate adjusted EBITDA and adjusted diluted earnings per share by adding back interest, taxes, depreciation and amortization, stock-based compensation, gain or loss on currency exchange, any acquisition or financial transaction-related expenses, any asset impairment charges and any tax provisions or benefits related to these items.

We provide a reconciliation of these non-GAAP metrics to net income and diluted earnings per share to relative GAAP metrics in our earnings release and on our website. Turning to our consolidated income statement for the fiscal year. Our total R&D costs were $7.8 million or 13% of revenue compared to $6.4 million or 12% of revenue last year. R&D expenses were $4.5 million compared to $3.2 million last year. Capitalized R&D was $3.3 million compared to $3.2 million last year. This reflects increased investment in personnel costs for the newest version of our Monolix Suite product version 2023 R1, which was released on February 28, 2023, the development of the next version of our GastroPlus product, GP and the development of the next version of our ADMET Predictor version 11, which includes significant enhancements to the artificial intelligence drug design or AIDD module.

For the fiscal year, SG&A expense increased by 39% to $34.7 million or 58% of revenue compared to $25 million or 46% of revenue last year. This increase was primarily due to a $5.4 million increase in employee and labor-related expenses. Additionally, the overall increase in SG&A expenses is due to an increase in merger and acquisition costs and the trade name write-off previously mentioned. Absent these costs, SG&A expense would have been $21.2 million for the year or 36% of revenue. Income from operations decreased 39% to $8.7 million, while operating margin was 15% due to the M&A costs, ImmuMetrix compensation expense and impairment charge previously mentioned. Excluding these expenses, income from operations would have been $12.4 million or 21% of revenue.

Interest and other income was $3 million versus $0.2 million last year due to interest income of $3.4 million, driven by the rise in interest rates this year. As previously mentioned, other income included $0.7 million expense related to the ImmuMetrix acquisition. Income tax expense was $1.7 million compared to $2.6 million last year, reflecting an effective tax rate of 15% this year versus 17% last year. Our effective tax rate decreased mainly due to favorable foreign income tax rates for the fiscal year. We expect our effective tax rate for fiscal 2024 to be in the range of 20% to 22% without the tax benefit we saw in fiscal 2023. Of note, our fiscal 2024 EPS guidance of $0.66 to $0.68 reflects the higher estimated effective tax rate. If we were to realize the same effective tax rate as fiscal 2023, our guidance would be in the range of $0.72 to $0.75.

Net income for the fiscal year decreased 20% to $10 million and diluted earnings per share decreased to $0.49. Adjusted diluted earnings per share was $0.67. The revenue impact for the fiscal year from foreign currency exchange was $0.6 million. Fiscal year adjusted EBITDA was $20.6 million and adjusted EBITDA margin was 35% compared to adjusted EBITDA of $21.5 million or 40% margin last year. Now turning to our balance sheet. We ended the year with $115.5 million in cash and short-term investments. The change for the fiscal year was primarily driven by the addition of $21.7 million in free cash flow, less $4.8 million in dividend payments, $20 million for our accelerated share repurchase and $9.7 million net cash paid for the ImmuMetrix acquisition.

We continue to be well capitalized to have strong free cash flow and seek opportunities for strategic acquisitions, investments and partnerships. I will now turn the call back to Shawn.

Shawn O’Connor: Thank you, Will. I’m pleased with the results we delivered in fiscal 2023 while navigating a challenging backdrop. I’m proud of our team’s accomplishments this year. We successfully implemented our contract harmonization program, which is leading to greater visibility into revenues. We grew software double digits and saw good performance from our services business with that team finishing the year with a 25% increase in our backlog. We completed our accelerated share repurchase program as planned as part of our overall capital allocation plan. We completed the acquisition of ImmuMetrix and are very pleased with how the integration is going. ImmuMetrix has a strong reputation in the immunology and oncology markets and has a healthy pipeline of activity, including new accounts sourced from our simulations plus customer base.

Importantly, we achieved the guidance we provided last year by building stronger client relationships and maintaining our scientific leadership in model-informed drug development. This achievement was made possible by our team. We made critical investments in talent and added to our scientific resources to meet customer demand, while at the same time, we maintained good retention and strong recruitment. I’d like to thank all of our colleagues at Simulations Plus for their effort and dedication throughout the year. But I’d especially like to honor two people. Viera Lukacova, Chief Science Officer at the PBPK business unit for being named an AAPS Fellow, richly rewarded for her leadership in the development and advancement of PBPK. We thank her for her 18 years of service at Simulations Plus.

And Amparo de la Peña, VP Pharmacometrics Services, who was recently elected to the International Society of Pharmacometrics, or ISOP Board of Directors. Our talented and esteemed team here at Simulations Plus creates value for our clients every day to help develop safer and more effective drug solutions. The spirit of innovation and energy to do more is strong. To conclude, the underlying fundamentals of our market are resilient with our growing revenues, delivering profitable growth and generating cash. We’re well positioned to meet our goals for fiscal 2020. Thanks for your time today. And with that, I’ll turn the call over to the operator for questions.

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Q&A Session

Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Our first question is from Francois Brisebois with Oppenheimer. Please proceed with your question.

Francois Brisebois: Hi, thanks for the question. So, just wondering, in terms of the challenging environment, obviously, biotech funding is continuing to be difficult. I was just wondering, when you talk about your guidance for next year, you mentioned that there would be status — that’s with the idea that it’s at is of what’s going on. Maybe the 10% to 15%, can you just remind us maybe of the ImmuMetrix and kind of the targeted milestones or revenues that you’re hoping to get there? Why it keeps the guidance in the 10% to 15% range on the revenue side for next year? Thank you.

Will Frederick: Yes, sure, Frank. Yes, the marketplace itself, we always have a very good data flow at this time of the year as our clients are in that budgetary cycle running towards the end of the calendar year budgets for next year when you put together always get a good witness test in terms of the market twofold, one in terms of those calls that we get in terms of budget spend before the end of the year and as well quoting processes for inclusion in budgets next year. In both regards, I say we’ve gotten some good input positive frequency of those conversations taking place. Certainly, when you look back and compare it to last year, it’s more active, more positive than it was last year, but not enough to kind of look forward and say that the market has changed.

So status quo comments in the context of our guidance is that we kind of look out to ’24 and build our guidance based upon status quo, a similar sort of market environment with biotech funding being where it is, it has been in the last number of quarters and cautiousness in terms of large pharma budgets into 2024. ImmuMetrix has been a great addition. And certainly in the short window of time that they’ve been on board, biggest impact in terms of the pipeline, being able to take their expertise, their customer base in immunology and oncology models, free them on board, certainly brought some backlog into the picture. Most positive has been the embraced out of our customer base in terms of presenting the new capabilities in those therapeutic areas to them and that’s build the pipeline disproportionately QSP business at this point in time.

So that provides you good momentum going into next year. Minimal contribution to revenue given the timing of the acquisition here in the fourth quarter, we look for contribution next year, setting the guidance of 10% to 15% for next year gives us the opportunity of buying to increase our growth rate next year by 50%. And that certainly will be contributed to by ImmuMetrix, they’ve got and part of the acquisition agreement was an earn-out outlook and earn-out that would be achieved as they get revenue targets of $5 million, $6 million in the 2023 time frame and $8 million in the calendar year ’24 time thing. So they could contribute significantly. At this point in time, in terms of that market, we’re being cautious in terms of their contribution going forward, but they certainly provide a boost to our outlook in the next year.

So overall, I wanted to go into the year with guidance that was not based upon any sort of uptick in the overall market, give us some benefit from the momentum that we seem to be carrying into the next year, give us some momentum in terms of the contribution and the efforts we’ll make for the business next year and in trading at 10% to 15% with 11% performance this year. That gives us a perspective of — yes, we likely will do better within that range.

Francois Brisebois: Okay. Great. And then just maybe to remind everyone that the harmonization of the contracts and renewals, can you just remind us what that process was and how we’re coming to the end of it and why that helps get clarity on revenues going forward?

Will Frederick: Sure. Sure. No, the harmonization process was a process that mutually our clients and from our perspective, we saw benefits from taking those clients that over the years have accumulated multiple licenses within a single platform or multiple licenses across the multiple platforms of our three primary software products, GastroPlus ADMET predictor in Monolix and working with them to consolidate those differing license renewal dates across an entire year in some cases and identify a focal date to bring them together so that all of the renewal activity would be within one time frame. Mostly larger accounts, obviously, those that have multiple licenses. And that had an impact last year, an impact of pushing renewal dates around our seasonality, which has typically been low first and fourth quarter revenues and high second and third quarter revenues.

As you look back over this past year that resorted itself into an even lower first quarter, but then more evenly dispersed on an absolute dollar basis, second through fourth quarter. And so through 1 year’s cycle time of renewals, we’ve achieved that harmonization across most of our large accounts. there’ll still be more of those events that take place next year. And other accounts may reach that threshold where can we harmonize, but it won’t be the number of accounts that destructed the seasonality in ’23 in the future in ’24. So I think we set ourselves into a new seasonality pattern that will hold in ’24 and beyond.

Operator: Thank you. Our next question is from Matt Hewitt with Craig-Hallum. Please proceed with your question.

Matt Hewitt: Good afternoon and thank you for taking the questions. Maybe first up, and maybe you touched a little bit on the harmonization. How should we be thinking about cadence in fiscal ’24. Should we anticipate maybe a little bit of a step down here in Q1 just with some of the holidays and whatnot, maybe the services revenues are a little bit lower, but then kind of bouncing back up and more of a flattish the remainder of the year in line with your revenue guidance for the year? How should we be thinking about the cadence?

Will Frederick: Yes. I mean, I think that’s fair, Matt. First quarter is always — was a lower quarter last year and historically before that. Eaton has made more dramatic by the armoization process last year. So yes, revenues in the first quarter of 24 likely be in comparison to second, third and fourth quarters, the lowest quarter, second, third and fourth quarter should be relatively comparable level in terms of absolute dollars on a year-over-year comparison basis, I mean, we’re comparing a link seasonality in ’24 to a seasonality in ’23. So on a revenue growth percentage basis, that cadence should be a little bit more consistent as we work our way through next year. So we focus on software, and that is 50% of the revenue flow.

On the service side, the slowest of quarter is usually our fourth quarter impacted tremendously by the holiday in the holiday, but the summer season, both in the context of our own staff taking some time off, but our client at taking time off, which has the tendency of the slow projects project activities. That’s why in the last fourth quarter, the percentage of projects were mostly fixed-price projects. Time and materials are more an interactive delivery and if the clients on vacation needs not calling up for time and material support. First quarter is usually a little slower on the consulting side, too. That’s driven the holidays is a piece of that, but it’s also driven by first quarter as conference our industry conferences, most significant ones take place.

There’s one taking place right now in Orlando. There’s another in a couple of weeks, the first week of November. So service revenue is a little bit more bell-shaped curve, if you will, in terms of first and fourth quarter typically being a little bit lower.