Welcome, everyone. I'm Scott Schoenhaus, the Healthcare Technology Analyst at KeyBank. Happy to have Shawn O'Connor, CEO of Simulations Plus, with me in our fireside chat. Shawn, welcome. Shawn, let's just kick off, I guess, perhaps people that are new to your story, what software and services you offer to biopharma companies. Within that, what are the main software applications that you are selling into large pharma? Sure, Scott. Hey, thanks for having us at your conference today. I appreciate it. Simulations Plus supports the biopharma industry with the provision of software platforms in the biosimulation space and a consulting service to support our clients' use of those platforms. Our revenue is driven about 60% by those software platform licensing and about 40% from the provision of services and support of our clients. Four primary software platforms in our portfolio. They range in terms of their application from early discovery through to and beyond regulatory approval. Some applications in the after-approval marketplace as well. Our target here is the biopharma's drug development process, which we all know is a 10-12 year duration to get a drug to market, a billion dollars plus in terms of the average cost. The real challenge here is the predictability, the batting average of success in terms of those molecular structures that are taken into the clinic and ultimately gain approval and introduction into the marketplace, which drives the average cost of a drug to be developed. Our platforms, I'll run through them. ADMET Predictor is a product that supports the discovery department, that early stage, earliest of stages in a drug sponsor's effort to identify molecular structures which might hit their target with a reasonable efficacy and toxicity profile assessed upfront. It's a process that is historically a very trial and error process, with that process being identifying a molecular structure, taking it into the lab, perhaps synthesizing it, and getting early information. ADMET Predictor provides 150 different property predictions for that molecular structure before you go through that cycle of taking it into the lab for testing, which each instance may be $100,000-$200,000 in terms of that effort and a time duration that is shortened tremendously by utilizing the property predictions that come out of our tool. The next platform is a platform called GastroPlus or GPX. Modeling and simulation in support of drug development takes many different forms. PBPK, physiologically based pharmacokinetics, is one of those approaches. That is what the platform GastroPlus supports. It is a combination of disease and biological models along with drug profile models. The use cases for the platform began in preclinical phases and run through beyond regulatory approval. The sweet spot is in the first in human or first in species animal testing, setting up the protocols for the animal test, translating animal results into predictive human results, which supports the initial protocol for a first in human test, and then supports through beyond the clinical process. Ultimately, as an example, supports bioequivalency studies aftermarket in terms of changing formulations in drug recipes, if you will, in the manufacturing process. GastroPlus has applications out as far as that point in time. The third platform in our portfolio is a PKPD tool, pharmacokinetic pharmacodynamic tool. Monolix is the name of that product. PKPD tools are used to profile drug profiles, pharmacokinetic pharmacodynamic, when you ingest a molecular structure, how much of that gets into your system, and what's the profile of its disposition, duration of time in the system, and how does it meter itself out. This is an important ingredient in the preparation of dosing regimens and patient stratification, two key characteristics of the developing of a clinical trial and allowing for the simulation of that clinical trial, identifying predictive outcomes of a trial, and the iterative process of going back and tweaking the protocol to ensure highest likelihood of success. The fourth platform in our portfolio is, again, a predictive analytical tool. In this case, it is a training and education platform for drug sponsors in their enactment of a clinical trial protocol. The number one citation from the FDA at the end of a clinical trial is for lack of adherence to the protocol. The patient hasn't been administered the trial specifications according to the protocol and obviously disrupts the success and outcome of that clinical trial. Our Pro -ficiency platform provides a very unique use of science and technology and educational science in improving what has historically been a PowerPoint presentation education structure to the sites and participants in the clinical trial. It takes that to a more sophisticated level that has a proven track record of being more successful in training participants in the clinical trial. Most importantly, the platform provides the drug sponsor with an ability to track the training efforts and the success of the trainees such that the drug sponsor can proactively address issues before they become clinical trial issues, either by upping the training activity or redirecting patients to clinical sites that are adhering to the protocol in a more accurate fashion. Those four platforms drive our software revenue stream. We also license models out of our QSP practice as well. In total, the software side of our business represents about 60%-60% plus of our revenue drive. Within the software modules you mentioned, where are you seeing the most growth in clients currently, Shawn? Yeah, you know, modeling and simulation in its various domains are at different stages of adoption. I'll walk through them from left to right again in the same sequence. The ADMET Predictor product and discovery. Discovery with the advent of AI successes and technology development is a big focus in life science. How do we get more selective, more quickly, and more accurately with molecular structures to put into the clinical process? So ADMET Predictor being a contributor based upon machine learning technology, that is an area of good, strong growth for us today. The PBPK platform, GastroPlus, is in an area and covers enough of that drug development continuum in which use cases are being developed. New use cases are being developed quite frequently. That's growing fairly well in the marketplace today. QSP models are a very new area of application in the world of biosimulation. On a small base, newly introduced, that's growing quite well. The PKPD platform, Monolix, is in a little bit more older market in terms of that approach to modeling and simulation. Its origins date back to the earliest of biosimulation introduction in the early 1990s. Our product, however, is a relatively newcomer, seven years in the making, into the marketplace and is growing probably our fastest growing software platform as it is rapidly taking market share from the incumbent application in that segment. Finally, Pro-ficiency, the educational platform there is, again, growing faster than our other applications, our other platforms, as it really revolutionizes and takes into a world of new technology that training sequence ahead of clinical trials. All four platforms are growing quite well, seeing great interest in terms of the ADMET Predictor side, very strong growth where we're replacing an old incumbent product in the Monolix area. GastroPlus and Pro-ficiency are growing quite nicely as well. Moving on to the services, I think you had bookings were up 22% sequentially this last quarter, but you had some revenue, a light revenue in the quarter from some client-driven delays. Just go over again what drove that and sort of what your expectations are moving forward throughout this year on the services side, Shawn? Yeah, yeah. In a world in which our end-to-market pharma companies, biotech companies, it has been an environment of cost constraint for a whole host of reasons. Our software business is really an infrastructure play. As costs are constrained, our clients aren't dismantling infrastructure. Our software business renewal rates are high and steady. That revenue stream is not as disrupted as the service side of the business, which is, it's not discretionary, but it's more manageable on the part of our clients in terms of start and stop, in terms of consulting projects according to their budget. Our service business can be a little bit more sawtooth in terms of its growth quarter to quarter. Specifically, you referenced a very good bookings quarter in our first quarter. Now, our first quarter with a fiscal year that ends in August, our first quarter ended in November. That is the timeframe of budget setting in our client base. The bookings in our first quarter were very good as they began to close out their budgets for calendar year 2025 and began contracting that business, which would be implemented, initiated, those projects populate the calendar year 2025. We are quite pleased with our bookings in our first quarter. The revenue in that quarter was at the end of their calendar year, a timeframe in which they had pretty well consumed their budgets for spend in calendar 2024. A softer quarter for us on the service side in the first quarter. That bookings bode well in terms of their level of use of our consulting practice into the calendar year of 2025, the back half of our fiscal year 2025. You've used services as a leading indicator of your software. How should we think about the relationship between services and software? Obviously, there's implementation that needs to be done upfront for the software on the services side. Just help us navigate between the services and the software segments. Yeah, you know, in some cases, when you're talking about small biotech, smaller pharma entities, often they don't have the internal staff to do this type of work and will outsource to Simulations Plus to do that work on a service basis as they mature, get more drugs in the program, grow in size. They will build internal infrastructure and begin licensing our software to do it themselves. Now, that said, our consulting practice, disproportionate of our services are provided to larger, not only the top 20, but larger pharma that have modeling and simulation resources internal to their organization and license our software already. Typical sort of strategy on the part of our clients of that profile, they don't staff up internally to meet 100% of their needs. They will license our software and undertake a portion of their modeling and simulation requirements, perform it in-house. They will also have budget to hire and supplement their internal capabilities with services from Simulations Plus. Yeah, there is a leading indicator to some degree in some accounts and the smaller accounts that start out as a consulting client that then acquire our software down the road. It is not a prevailing way in which either software finds a new logo or consulting business is attracted as well. You mentioned Pro-ficiency seems a nice growth there. Let's drill in there more. You acquired this beginning of how long ago was this now, a year ago? June. A lot of time flies. Not quite a year yet, but the months are ticking away here already. Yeah. Let's talk about how it's progressing. I mean, I think the main two issues or challenges was it was too services-heavy versus software. I think the mix was inverse of your ratio and there was ability, obviously with that mix shift to increase margins, but I think there were some cost opportunities as well. Walk us through what you're seeing. Has software revenue growth accelerated towards your legacy profile yet? Are we seeing some margin expansion happening? Yeah. No, it has been a quick six months. We've certainly, from a synergy impact on the business model perspective, first and foremost, internal integration has allowed us to shed a lot of the overhead of the acquired company in terms of back office, HR, finance, that sort of part of the world. Integration elsewhere in the organization has been accomplished. The business development team, their business development people have been integrated into our team as a whole. We've trained across the group and have a singular go-to-market strategy across all of our portfolios, including Pro-ficiency now. In terms of impact on our financial model, as you referred to, yeah, a couple of things. Their mix was 60/40 in the direction of services to our 60/40 in the direction of software. And their software growth within their revenues growing faster than services. And that has continued. It is a transition that should move to our profile of 60/40, but probably isn't accomplished in fiscal year 2025 for us and probably get more approximate to our model in fiscal year 2026 timeframe. Also had within their two segments of their business, their software margin, where we enjoy 90% plus gross margin on our software business, they're probably 80%, let's use a round number. That's indicative of the fact that they have to build the training modules before they're licensed to our clients. There probably will always be a little bit less, but they've been very adept at translating a process that in its origin included a film studio and the hiring of actors and film editors, etc. The vast majority of that work is being done using AI and avatars and technology. The studio is getting a little dusty. Still needs to be opened up when there's an intricate training module that can't be replicated just yet with AI. That obviously is a much more cost-efficient build of those training modules. That will continue. The 80% will move upwards. Probably don't have an endpoint that is at our 90%, but it'll improve. The service margin, service side of the business, the value-added services that they provide in medical communications, pretty comparable margins to our service margins overall. In that business, however, it's very typical for the drug sponsor in medical communications, one significant piece of the work that they do is KOL management and training. Often the drug sponsor wants the agent, the medical communication agent, to act as travel agent and book flights and hotel rooms and pay fees to the KOLs at a very administrative margin markup and whatnot. We are helping them along a path of partnering with other service providers to take on that type of work, which will improve the margin on the service side of the business as well. Overall, Simulations Plus is very focused in terms of getting back to what has historically been a 35% plus EBITDA margin. Our guidance this year is 31-33%, a step forward in that direction. In fact, if you looked under the covers there, our SLP legacy business, ex Pro-ficiency, if you will, does in fact look to be headed and will be in the 35% plus target range in this fiscal year. It is the Pro-ficiency impact that brings our guidance back down to 31-33%. Anticipate that another fiscal year, fiscal year 2026, allows us to achieve that objective on an overall basis. How many customers does Pro-ficiency or how many customers did Pro-ficiency have when you bought it? Has that grown? Are you able to cross-sell your legacy software to legacy Pro-ficiency customers and vice versa? Just kind of looking for the cross-sell opportunities here. Yeah, yeah. Yeah, I'd say the cross-sell is in the other direction. The customer base of Pro-ficiency, I think 90% were customers of SLP already. It's really our opportunity to sell their capabilities in through to our 250 clients. I think the Pro-ficiency count was maybe 20-25 customers. Keep in mind that they can be like our service business. A customer today, when the project's done, may not be a customer tomorrow for a few months until the next project comes up. It's a moving target in terms of customer count at any point in time. The real opportunity, first and foremost, from a priority and timing perspective, is giving the Pro-ficiency team an ability to work their way into large pharma accounts. They had relationships with eight of the top 20. Obviously, our coverage is much more extensive to that. It is not only the introduction, but it is also the engagement size. As a relatively small startup, becoming a new vendor for a drug sponsor, a large pharma account, requires a master service agreement. They are motivated to keep their list of vendors as short as possible. Our relationship with them is of that higher nature and should give Pro-ficiency a better crack in the door. That is what we are playing out right now. In the long run, the addition of Pro-ficiency opens up a couple of new budget areas for us. Traditionally, we access the discovery department's budget. We access the modeling and simulation department budget. As well, the clinical management budget, if you will, the team that manages the drug through to the development clinical cycle. Pro-ficiency coming on board opens up a clinical ops budget for that clinical trial. As well, medical affairs for communication work we do before a drug is approved. The commercial budget for after regulatory approval, introduction of a drug into the consumer marketplace, if you will. A longer range of leverage here is the amount of budget opportunity that we can access with our clients as well, our TAM has doubled. Our budget access follows that sort of doubling as well in this process. The ability to sell biosimulation into medical affairs, either pre or post regulatory approval, the content is through the Pro-ficiency platform. There are some biosimulation content that can be made attractive to medical affairs there in their process. Quite frankly, ultimately, modeling and simulation is the backbone to personalized medicine. As personalized medicine sort of reaches the commercial marketplace, there will be opportunities for us to drive revenue out in that direction as well longer term. Drilling into the guidance for this year, Shawn, you talked about the margin impact from Pro-ficiency. I understand that. Now, on the revenue side, I believe you said $15 million-$18 million revenue contribution from Pro-ficiency. You've guided to $90 million-$93 million. Back that out. Single-digit growth on your legacy core business. Maybe talk about the puts and takes there, both on the software and services side. I mean, we've talked a little bit about the end market challenges. I think you've pointed to 10%-15% growth on average that biosimulation should be growing as an industry each year. Maybe just talk to us about what the guidance contemplates for this year and how you think dynamics shift potentially. Busted. You caught me. Yeah. Our legacy business, 10-15% growth is the assumption. That's been our guidance for the SLP legacy business for a couple of years. Two years ago, we were down at the low end of that 10-15% range. Last year, we were at the high end of that range. The dynamics there are one of we assume the market would continue to be cost-constrained going into this fiscal year. No change in the market. Some leeway for, hey, it could get better, could also get worse. We were at the time of the election, and everyone thought the election would clear away all the mysteries of life. It hasn't exactly accomplished that, but we'll see how that goes. Yeah. If you take 10%-15% growth, and then our growth in terms of Pro-ficiency is based upon their track record, $15 million-$18 million on top of that, boy, that puts you at or above our top end of our guidance. Purely a perspective of, hey, let's be conservative in our guidance. And hey, if there's opportunity to come in at the high range or even beat it, there's also room to absorb a hit or two surprise along the way and still achieve guidance. Great. I guess my last question is sort of existential and broad-based and philosophical, right? I think a lot of the biggest pushback I've gotten from investors from covering this space, generally speaking, biosimulation is, why isn't there more broader adoption? It's seemingly right at the sweet spot of what large pharma wants to do, which is cut costs, drive efficiencies. We saw it accelerate during the pandemic when there was literally not you couldn't run clinical trials, so you needed to do biosimulation. Things have slowed. People want to know, yes, they understand the cyclicality of pharma spending and doing clinical trials is cyclical in nature. I guess the bigger question is, why hasn't there been more broad-based adoption of biosimulation by a large pharma? Is it because it's very fragmented, where there's a lot of different little niche biosimulation software offerings, so everyone's taking a little piece of the market share? What's your pushback on investors saying, well, I don't know if we'll get to mid-teens growth perpetually to existence. We should have seen it by now. Yeah. Yeah. Boy, I've been in the business for 25 years prior to Simulations Plus, two previous companies. I've been asking, when's the hockey stick? I've been asked, when is the hockey stick for 20 years? While we all may have hoped for a steeper hockey stick, the nature of the pharmaceutical industry, scientific hurdles to get over, regulatory hurdles to get over less today than it was before, but still a population of biosimulation PhD scientists that can do this type of work, that supply has never met demand there. That's improving, but it's still there to a certain degree. It is being adopted. Growth, 12-14% average growth in biosimulation has been in an environment in which R&D spend growth has been 3-5%. They're doubling the amount that they're devoting to biosimulation in comparison to their other spend in the R&D space. It is growing. The number of use cases and applications for biosimulation are growing. And adoption is there. It's not a market that in nature is going to double, triple, quadruple, hockey stick its way to growth. That might disappoint people that are looking for inflection points. It can also be a strong characteristic of a business that has plenty of runway, delivers, whether it's in good times or challenging times, very good growth, and very profitable flow through to the bottom line. That can be boring sometimes, and I apologize for that. That's what we're focused on at Simulations Plus, and I've tended to deliver it on a pretty consistent basis. No, I think that's well said. Do you think there's more room for consolidation? It seems like there's always an M&A story across this industry. Do you think that just continues in perpetuity? Yeah. I think it's a market like a lot of scientific tool markets. There are little tools and widgets being invented, discovered all the time that make great tuck-ins. I think historically, all of these approaches of modeling and simulations have been looked at in isolation. I think the value of integrated platform increases over time, if not to the individual scientists, but to the IT department that would like one platform to manage. Yeah, we've built a business over the years, seven acquisitions, I think, in our history, and would anticipate that that will continually be part of our strategy going forward. Thank you so much, Shawn. This has been a great fireside chat. We'll continue to watch your progress this year and hopefully see some tailwinds finally on the life sciences space that we so desperately need. Thank you so much, Shawn. Thank you to all investors for joining this fireside chat. Thanks, Scott.