Okay, great. Thank you, everyone, for joining the Oppenheimer Healthcare Conference. My name is François Brisebois. I'm one of the senior analysts at the company, at the firm. Our next presenting company is Simulations Plus. The ticker is SLP. Really interesting play here that we cover with an Outperform rating from the company. We'll have CEO Shawn O'Connor to talk. And what we'll do in terms of a format is we'll do a fireside kind of chat. But before that, thank you very much, Shawn, for joining. Maybe if you can—it is a little bit different from some of the companies at the presentation. Maybe you can help people by explaining what you guys do. I'll be glad to. Thanks for having us, Frank. And enjoy speaking to the Simulations Plus story, a story 25+ years in the making. We are a biosimulation company, modeling and simulation support to the drug development process is our focus. Our clients are pharma biotech companies for the most part. We span a wide host of software solutions and consulting support that help decision-making from discovery through to approval and beyond. Have built the company over the years, both organically as well as through acquisition - about 5 acquisitions in the company's lifespan - all designed to expand our TAM and our ability to support our clients in the adoption of modeling and simulation, which began in the early 1990s, continues to this day. Scientific hurdles, regulatory hurdles along the way, speed that adoption process from time to time. Today, we live in a world in which AI is the buzzword and certainly presents a lot of promise to increasing and expanding the use of modeling and simulation. We've participated in AI technology. Our entry into the marketplace was way back in the 1990s before AI was really the buzzword. But the AI wave that's occurring today is helpful in terms of opening up awareness, opening up new technologies and ways to provide modeling and simulation support in the drug development process, and not the least of which producing a lot more data scientists in this field, which has always been a constraining item in terms of our marketplace. The population of scientists out there that can do this type of work is certainly accelerating with the focus driven by AI on data science, predictive analytics taking place in the industry today. That's very helpful. You mentioned, just to clarify, because this comes up quite a bit, where when people talk about AI drug developers, maybe can you explain how you guys have been doing this since the '90s, before it was a buzzword, and you're proven. We can go into that further when you have revenues, you're a profitable company, you've grown quite a bit since the original IPO, and you turned into a market leader in a growing space. When someone says, "Is this another AI drug developer?" why are you different? Well, we're different in a number of ways, not the least of which is our extensive long background in the industry. The application of AI solutions to a specific problem is really the contribution of both the mechanics of AI and the domain knowledge in the space. And so our 25+ years of working with our clients in the pharmaceutical industry gives us a rich background and experience and knowledge of data in the specific world of identifying drug candidates, identifying biomarkers, developing support for optimizing clinical trials. And so our background and years of experience in this space is certainly an advantage. You see a lot of AI plays that are out there, which are coming from the technology side with not a lot of the domain side. And so it's a large market, a number of players, a lot of money being invested in this space. We're investing in the space because, inevitably, the AI techniques and approaches and ability to manage data and find those slivers of success within a large domain of millions of molecules, which is the right one, and how do you develop that through clinic, will be benefited from the AI advancements that are taking place. We are living that life ourselves. Okay. Okay, great. And if someone was to say, "Okay, so you're different in that form and your history and what you do and you provide tools to companies," who would be considered a good comp to you guys? There's a couple handful of companies out there. Most specifically or most commonly, Certara would be viewed as a peer. We overlap in some products and services, but not all. So it's not an apples-to-apples comparison. Our approach is to be the tool provider to our clients and help them in their internal organization provide modeling and simulation support to their drug programs, and do so with a model that's about 60% software and 40% consulting. Certara tends to be in the other direction, more 75% service. And so that's a differentiating factor. And they've invested in areas outside of predictive analysis like regulatory reporting. They're not a perfect apples-to-apples, but we do commonly compete in some of our software platforms and our consulting services. Schrödinger is often viewed as a peer. We don't compete with Schrödinger's molecular modeling tool, and they certainly got a side to their business, which is partnerships and direct investments in drug programs. So skews the business model comparison there. Other peers are more distant in terms of data management, clinical trial management, somewhat indicative in terms of volume of activity that parallel impact on our business model as well. Most of our competitors otherwise are private companies out there. And hence, it's a world in which specific niche applications have been developed by private companies. And that provides a wonderful field of opportunities in terms of the acquisition side of our strategy to leverage up our internal investment in R&D with an investment through M&A activity to supplement our products and services. So I think that in terms of the M&A comment that you just made, that leads into my next question, where you've grown a lot, 5 acquisitions you mentioned in the pretty recent past. I was just wondering how acquisitions come about. And then you had a press release today a few hours ago discussing the importance of M&A and growth and expansion of TAM. Can you just, for anyone that hasn't seen it, just expand on that press release from today? Yeah, no, I'll be glad to. M&A activity has always been a part of our strategy to expand products and services that we provide. Modeling is not a single tool that does everything. It's a wide spectrum of tools that differ in terms of underlying technology, differ in terms of scientific domain, and their application across the continuum of drug development. M&A activity has allowed us to expand more rapidly into wider reaches in terms of modeling and simulation in this space and remains a pillar going forward in terms of looking for good opportunities to acquire. Our last acquisition was completed this past July. A company that fit very nicely had a private company that invested in the application of mechanistic modeling approaches in therapeutic areas that complemented our similar effort in other therapeutic areas. And so it was a perfect acquisition opportunity and fit for the company. We'll continue to search and find those opportunities going forward. The release this morning was really in that effort, in our acquisition effort, we often run across opportunities that present interesting technology plays, interesting go-to-market solutions, very complementary to ourselves, but are themselves not acquisition-ready. We are very protective of the business model on our part that drives a very nice profitability profile for the company. So sometimes acquisitions are encumbered by the fit of their business model based upon their stage of life into what we do. Our announcement this morning was the formalities of a corporate development initiative, an effort on our part going forward here that's supplementing our acquisition effort, which remains the priority. We see opportunities out there to make investments in partnerships, equity investments in partnerships of some of these smaller not-ready-for-acquisition candidates to more rapidly bring that technology into our fold and can present near-term revenue opportunities, but maybe more medium or long-term revenue opportunities. Basically, leverages our ability to invest on the R&D side without impacting our business model. So we're quite excited about moving forward and deploying some of our capital outside of acquisition, but deploying that capital into investments in earlier-stage companies that can be impactful in multiple ways to Simulations Plus on a go-forward basis. Is the goal to ultimately make that company ready for acquisition, or this could always just be an investment that that's what it is and that's how helpful it is? Yeah, certainly. When When we look and we have a criteria in terms of what we're looking for in terms of a candidate here, their ability or our view as to how we get them from point A to point B and become acquisition-ready is certainly something that we'll be looking for. We are looking to be able to expand and complement our technology, our software platforms. So we will be attracted to opportunities that fit into this modeling and simulation space and expand and increase the value of our platforms. We may be able to drive early revenues, not just in terms of the impact on our platforms, but we may be able to drive an accelerated growth on that partners' targets program, which puts them in a position of being acquirable more quickly down the road. So yeah, certainly a part of the puzzle there in terms of screening opportunities here. Okay. No, that's very helpful. I think that's helpful for us to figure out what's going on. Can you just remind investors kind of your cash position and your level of profitability? Yeah, the model has been well managed over the years. On the top line, our growth, it's an industry that generally is growing 15% on average per year. We typically beat that average. Certainly, the growth over the last few years with biotech funding and large pharma cautiousness and whatnot, all those stories we've talked about before, it's been a slower last couple of years than typical. We've tended to grow faster than the market. That growth on the top line flows through to a very profitable business model driven by our mix of high-margin software, 60% of our revenues, and our consulting services, which are good-margin consulting, scientific-based consulting practice, and falls through to a nice EBITDA percentage, 30+% falls through to the bottom line. That creates a very good annual cash flow, positive cash flow that, when supplemented to a capital raise that we did in 2020, leaves us a pretty well-funded balance sheet with over $100 million+, funded nicely to the point where we did a buyback earlier this year. So from a corporate capital allocation perspective, our existing business model and balance sheet has provided us support for our acquisition activity, support for our ability to go back into the market and take some shares out to the shareholders' benefit, and could provide an ability to allocate some funds into this development initiative to make some equity investments in smaller entities. How important is that? You talked about versus your comp, the software-to-services kind of ratio. As you're thinking M&A, how important is it to stick with software being higher than services? Or look, if the right acquisitions are available, we're fine with going services 60%, software 40%. How important is that going forward? Yeah, I mean, it has its importance in terms of that mix, the differential and margins of the two sides of the business and how that contributes on a net basis to the bottom line. So it's an important criteria. That said, our acquisitions in the past have been combinations of the last one in July was mainly a service-based revenue revenue-based. The one prior to that was a 100% software revenue. So we'll do acquisitions, and there'll be opportunities for us to expand in both sides of our business. And we'll be protective of that mix and look to maintain that overweighting to the software side. At the same time, strategic fit here. It's an industry that, as we all know, is very open to outsourcing as opposed to doing work in-house. And so service opportunities will always be present there for us. To the extent that they complement and strengthen our portfolio, both software and consulting services, we won't be afraid to continue to move on the service side as well, but with an eye on that balance, trying to keep that balance as best we can. Okay. That makes a lot of sense. Then you talked about the challenging funding environment. It seems like in the biotech, from the outside, just covering a lot of biotech, it seems like data is getting rewarded, the funding environment is looking better. Then again, yesterday, another acquisition where it's almost like if the funding environment isn't quite there or investors aren't making a move on lower valuations, that pharma is coming in and acquiring at a pretty good pace here. So can you share with us kind of from your perspective, speaking to larger pharma, smaller biotech clients, kind of your view on the optimism maybe, but cautious optimism of the funding environment? Yeah, you can't say that word optimism without also saying the word cautiousness. Certainly, some very positive signs of late. I think you, OpCo, have had three or four announcements of capital raise activity since the first of the year. So things seem to be picking up as we would want it to be. It's good candidates for funding. We were coming out of a world a couple, three years ago where funding was taking place pretty aggressively. And so we're certainly not returning to that world, but we seem to be returning to a world in which good opportunities do find funding out there. And certainly, on the large pharma side, as is always the case, but we seem to have on the horizon a number of patent expirations and whatnot. This usually tends to lead large pharma to be more aggressive in terms of finding more developed mid or later-stage assets that they can bring into the fold to replenish their revenue opportunities going forward. The market and activity in that regard is picking up, which is a good thing on our part. But let's keep that word cautious in our phraseology just yet. A lot to come, presidential elections and all kinds of other activity coming up that we'll have to keep a watchful eye on. There's always something. And it's interesting because even when the market was going well, then the problem is the companies you're trying to acquire might think their valuation is worth more than the acquirer might think. So it's kind of ebbs and flows a little bit. Can you maybe you just had your fiscal first quarter 2024. I think a lot of people look at your guidance. And in terms of quarters going forward, you talk about this contract harmonization and quarter-over-quarter fluctuation, probably stabilization, especially on the software side. What does that mean, and how has that changed in the past couple of years for you guys? Yeah, it's a topic that was really a last-year topic. Last year, we went through a process of taking clients that had divergent renewal dates across their portfolio of licenses that they took from Simulations Plus. We went through a process of consolidating them on a single focal date, which shifted revenue recognition among the quarters for the year. It came out just as expected, but first, second, third, fourth quarter, timing of renewals was changed as we come into this year. That exercise is, for the most part, complete. We always have a renewal that'll slip from this quarter to that quarter or whatnot. So there's always that sort of activity, but much minimal compared to what it was last year. So we're back on track. Our seasonality, which is really driven by buying patterns by the industry, those buying patterns, especially in the context of our software licenses and revenue recognition of those licenses on day one of their 12-month license windows. That renewal date is primary in terms of what quarter it gets recognized in. That's settled out this year, for the most part, now going forward. Okay. Great. In terms of license renewals, can you talk about the stickiness of the business? If anyone says, "Why aren't they a SaaS?" model, what would you answer to that? How does it go with license renewals? Well, I mean, the primary driver there is the desired on-premise installation of our platforms by our clients. 10% of our clients gain access to our products through the cloud, but most of them install it in-house. The license is a 12-month license. We really have no obligation since we're not hosting it beyond sending them the key upfront that opens up the application for them. And hence, GAAP drives recognition of that annual license on day one of the 12-month window of time. We enjoy very healthy renewal rates. Our renewal rate this last quarter was 100% on fees. And yeah, it's typically in the 95% plus or minus range. We also disclose the metric renewals by account. And that usually is in the high 80s% and reflective of smaller clients this past year, a number of small biotechs who did not renew. But its role on impact in terms of dollars, renewal on fees, is lesser because they're smaller footprint clients, fewer seats, smaller license dollar value. So generally speaking, our quarterly flow of software revenue is about 80% from renewals, 10% from upsells, more seats to the existing clients, and 10% from new logos. And so it's a pretty nice recurring revenue profile on the software side of our business. Okay. You reiterated your full year, kind of 10%-15% growth. That's what it was last year as well with the acquisition, with what's going on. Is this kind of a cautious growth, or is that what the space is seeing? There's no need to grow it. How would you add color around your guidance for the year? Yeah. That cautious optimism plays out here, whatnot. We grew last year 9%-10% in terms of top line, really somewhat depressed by the biotech churn that took place. In large pharma, cautiousness. As we enter this year, while all these signs are starting to accumulate to allow us to feel more optimistic, our guidance is still cautious. And therefore, a range of 10%-15%, kind of similar to our guidance last year, and we came in right at the lower end of it. I think our optimism says that, "Hey, that market pickup could take us to the higher end of that range." And certainly, yeah, we've got an acquisition that closed last year that contributes some acquisition growth, if you will, to the model as well. So we've got a couple of sources, opportunities to push us to the higher end of that guidance. And boy, if all the dominoes fell in place, God forbid, we might beat guidance. But at this point in time, cautiously optimistic. And that 10%-15% outlook is where we think we should be thinking about the business. Okay. Great. And then we had talked about this in the past year. The scientists that work for you guys, your consultants, are highly, highly qualified in this space. And the feel of a few years ago, maybe industry driving people to jump jobs a lot and people changing companies quite a bit, has that slowed down? Are people just happy to have solid jobs now, or how do you feel about your retention rate? Yeah, retention rate is good. Yeah, certainly coming out of COVID and the sort of 2022 window of time, there was a pent-up, as other industries encountered as well, job hopping that took place. And job hopping in an environment in which supply does not meet demand for this scientific community had the impact of also increasing the cost structure of our business with the compensation increases that took place. That wave seems to have passed. This past year, compensation has certainly settled. These are valuable assets, and they're paid as such. But that job hopping and flurry and competitive competition that drove compensation up disproportionately has settled down. We've seen good retention. We had good retention through that window of time as well, but you always lose people. Well, I think we lost. Okay. I'm just getting back here. We had a quick cutoff, but that does round it out for the discussion with SLP. Hopefully, that was helpful to everyone. Thanks again for joining.