Greetings, and welcome to the Simulations Plus Fourth Quarter and Fiscal Year 2024 Financial Results Conference Call. [Operator Instructions ] As a reminder, this conference call is being recorded. It is now my pleasure to introduce Lisa Fortuna from Financial Profiles. Ms. Fortuna, you may now begin..

Good afternoon, everyone. Welcome to the Simulations Plus Fourth Quarter and Fiscal 2024 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 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. With that, I'll turn the call over to Shawn. Please go ahead..

Pro-ficiency performance management, an adaptive learning platform that uses lifeline simulation and detailed data tracking to increase recruitment, retention and protocol compliance during clinical trials. In simulations of complex real-world scenarios, learners are asked to make decisions and practice implementation of the trial protocol.

The data generated provides insight into areas of the trial protocol that are unclear to health care practitioners, enabling clarification, further education prior to the start of clinical trials. Panorama KOL Insights is a platform for key opinion leaders, research in the life science industry.

It provides current information about influential industry leaders, which can be filtered by criteria, including, but not limited to, therapeutic expertise, professional affiliations and geographical location. We're pleased to report that the integration process is tracking ahead of plan across all fronts.

As previously announced, we formed two business units, adaptive learning and insights to carry forward with our clinical simulations business, led by Jenny Rouse; and Medical Communications led by Murray Alper, who to address medical affairs and commercialization support for our clients.

On the sales and marketing front, our combined go-to-market strategies and lead generation are underway. We expect these efforts to contribute to business development opportunities. Together, our scientific and technological capabilities are expected to deliver enhanced products and services, which further benefit our claims.

And additionally, we have integrated our back-office financial operational general and administrative organizations, which we will -- we expect will contribute to efficiencies and expense safety. With that, I'll turn the call over to Will..

Thank you, Shawn. To recap our strong fourth quarter performance, total revenue increased 19% to $18.7 million, including a $2.3 million contribution from Pro-ficiency. Software revenue increased 6%, representing 53% of total revenue and services revenue increased 39%, representing 40% of total revenue.

Fiscal year total revenue increased 18% to $70 million. Software revenue increased 12%, representing 59% of total revenue and services revenue increased 26%, representing 41% of total revenue. Turning to the software revenue contribution from our products for the quarter.

GastroPlus was 49%, MonolixSuite was 17%, ADMet Predictor was 18% and other products were 15%. For the fiscal year, GastroPlus was 53%, MonolixSuite was 20% and ADMet Predictor was 18% and other products were 9%.

For the year, our software customer renewal rate was 93% based on these and 84% based on accounts both increasing slightly compared to the prior year. Average software revenue per customer for the year increased to $129,000.

Shifting to our services revenue contribution by business unit for the quarter, CPP was 36%, QSP was 35%, PBPK was 17% and MC was 13%. For the fiscal year, PPP was 43%, QSP was 31%, PBPK was 23% and MC was 4%. Total services projects worked on during the quarter were 250. Year-end backlog decreased to $14.1 million, primarily impacted by two sources.

First, there were some service contracts that slipped into September. And in the first two weeks of fiscal 2025, we've already closed more than $3 million of these.

Second, we adjusted the backlog in the fourth quarter this year to remove open contracts that have been delayed, where there's still uncertainty regarding when the customers will resume the projects. As a result, anticipated revenue from backlog with 12 months increased to approximately 90% compared to 70% to 80% at the end of last year.

Total gross margin for the fiscal year was 62%, with software gross margin of 84% and gross margin of 30%.

The year-over-year decline in gross margin was primarily due to the reclass of operating expenses with the reorganization of our internal structure, the full year expense impact from the Immunetrics acquisition last year and the additional expenses from the Pro-ficiency acquisition this year.

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 14% of revenue compared to 11% last year. G&A expense was 19% of revenue compared to 63% last year.

The G&A expense variance was primarily due to the reclass of expenses this year to cost of revenues collected in the reorganization of our internal structure mentioned at the beginning of the year. We also made a true-up of all international services related expenses for the year in the fourth quarter.

G&A expense for the fourth quarter also included $1.7 million of transaction-related expenses for the acquisition of Pro-ficiency this year and included $2.5 million of transactions related expenses for the acquisition of Immunetrics last year. The transaction expenses related to Immunetrics last year included a $1.6 million compensation expense.

Total operating expenses were 43% of revenue compared to 80% last year primarily due to the re-class of expenses to cost of revenue this year offset by the addition of expenses related to Pro-ficiency this year.

Loss from operations was negative 6% of revenue compared to negative 2% last year, and income before income taxes was 5% of revenue compared to 0% last year. Other income was $2 million this quarter compared to $0.4 million last year primarily due to a decrease in the fair value of the Immunetrics earnout liability this year.

Net income for the fourth quarter was $0.8 million or 5% of revenue compared to $0.5 million or 3% of revenue last year. Diluted EPS was $0.04 compared to $0.03 last year. And adjusted diluted EPS, excluding the impact of transaction-related costs, were $0.06 compared to $0.18 last year.

This year-over-year change was primarily driven by the transaction-related expense add-back to diluted EPS in Q4 last year being larger than the add back in Q4 this year. Fourth quarter adjusted EBITDA was $4.1 million compared to $4.9 million last year at 22% and 31% of revenue, respectively.

We calculate adjusted EBITDA by adding back interest, taxes, depreciation and amortization stock-based compensation, gain or loss on currency exchange, any acquisition or financial transaction-related expenses and any asset impairment charges.

The reconciliation of this non-GAAP metric to net income, the relevant GAAP metric is in our earnings release and on our website. Income tax expense for the fourth quarter was less than $0.1 million compared to income tax benefit of $0.5 million last year. And our effective tax rate was 2% compared to 674% in the prior year period.

As a reminder, we true up our annual income tax estimate in the fourth quarter each year which impacts the effective tax rate in the quarter. Turning to our consolidated income statement for the fiscal year. R&D expense was 8% of revenue equivalent to last year.

Sales and marketing expense was 13% of revenue compared to 11% last year, primarily due to our increased investment in sales and marketing. G&A expense was 32% of revenue, down from 47% last year.

G&A expense for the year included $2.6 million of transaction-related expenses for the acquisition of Pro-ficiency this year, and included $3.3 million of transaction-related expenses for the acquisition of Immunetrics last year. Total operating expenses were 53% of revenue compared to 66% last year.

Income from operations was 9% of revenue compared to 15% last year. And income before income taxes was 18% of revenue compared to 20% last year.

Other income was $6.3 million during the year compared to $3 million last year, primarily due to an increase in interest income and the previously mentioned decrease in the fair value of the Immunetrics earnout liability. Net income for the fiscal year was $10 million or 14% of revenue compared to $10 million or 17% of revenue last year.

Diluted EPS was $0.49, equivalent to last year and adjusted diluted EPS, excluding the impact of transaction-related costs were $0.53 compared to $0.67 last year. Adjusted diluted EPS was lower than expected primarily due to the lower transaction-related expense add back to diluted EPS in the fourth quarter.

Fiscal year adjusted EBITDA was $20.3 million compared to $20.6 million last year at 29% and 35% of revenue, respectively. Income tax expense for the fiscal year was $2.5 million compared to $1.7 million last year, and our effective tax rate was 20% compared to 15% last year.

We expect our effective tax rate fiscal year 2025 to be in the range of 23% to 25%. Turning to our balance sheet. We ended the year with $20 million in cash and 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..

Total revenue between $90 million and $93 million, year-over-year revenue growth in the range of 28% to 33%, software mix between 55% and 60%, adjusted EBITDA margin between 31% and 33%, adjusted diluted earnings per share of $1.07 to $1.20.

We're providing guidance on adjusted diluted EPS versus diluted EPS, consistent with guidance practices for our industry. For comparison purposes, our adjusted diluted EPS guidance translates to at or above our fiscal year '24 diluted EPS of $0.49. Of note, our guidance does not include the impact of any future acquisitions.

As a reminder, our first fiscal quarter is historically our lowest revenue quarter due to the seasonality of our revenue streams. As such, the EPS could dip below breakeven and a low diluted adjusted EPS will be above the diluted EPS level. We still expect some impact.

We anticipate higher revenues in the remaining quarters of fiscal 2025, as we have had in the past, resulting in higher profitability in the remaining quarters of our fiscal year.

Our near-term priorities include completing the acquisition integration, expanding cross-selling opportunities, driving towards our historical adjusted EBITDA margin target of 35% to 40% and correspondingly profitability levels.

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 stakeholders. Thank you for your time today. With that, I'll turn the call over to the operator for your questions..

Thank you. We will now be conducting a question and answer session. [Operator Instructions] One moment, please, while we poll for questions. Thank you. Our first question is from Max Smock with William Blair. Please proceed with your question..

Hi, great. Thank you for taking our question. Our first one was just hoping you can give an update on staffing and services. I recall that very low attrition rates in the business have been weighing on margins. So curious if this trend has continued over the last few months.

And what your hiring plans look like in 2025, basically trying to get at when we can expect utilization to improve and how we should think about the cadence of margin progression in 2025?.

Yes. Thanks for the question.

Yes, as we indicated last conference call, our back half profitability in Q3 and Q4 was impacted as we hired to our plan but attrition that we baked into that plan was much less than anticipated, and that has contributed to some pressure in terms of margins in the service business in the back half of the year continued into the fourth quarter.

We have -- since this became more visible, adjusted our recruiting plans on a go-forward basis and anticipate that we'll get back in the line, if you will, with the matching of the capacity and revenue streams on the service side in the first half of fiscal '2025.

So a little bit of pressure in the first half of next year, but I believe that improvement will be gradual and through the first half and into the second half, we should be back on track, and it's reflected in our guidance of 31% to 33% EBITDA margin and that improvement during the course of the year..

Great. That's really helpful. And then just one on proficiency in terms of its competitive moat. So given that we have seen a continuing trend and expectation for more trials to be run by CROs.

And given that proficiency doesn't sell into CROs, do you see this as limiting the size of your business opportunity in the space?.

No, no. I mean the marketplace that they sell into is in support of pharma clients and their clinical trials in association with the CROs that are out there.

We are complementary to their services, competitive to those that do offer this sort of comparable, if you will, training type of capabilities, but the Pro-ficiency offering is pretty unique in terms of both its training module development and the software platform that supports it in terms of its delivery and the impact on adherence to clinical trials.

So clinical trial uptick in 2025 would be favorable indicator for the proficiency business, and it falls through in a marketplace alongside CROs and competition with some CROs, but that's the same marketplace that it's been selling into and succeed in the last number of years..

Great. And then lastly, just a quick modeling question. Sorry if you already said it, and I missed it.

But how much did Immunetrics and Pro-ficiency contribute to total sales in Q4? And also, what is this breakdown in terms of software versus services, asking because based on the it seems like the inorganic contribution was much lower than we would have thought in the fourth quarter.

So if this is the case, can you discuss the dynamics around this?.

Pro-ficiency's contribute came in a bit below the $3 million expectation that we had that came in at about $2.1 million, $2.2 million revenue in the second quarter, primarily in terms of the medical communications side, where our anticipation of how much of the project revenue, the service revenue from medical communications would be recognized in the quarter prior to our close of the transaction, obviously, don't pick up the revenue flow from those projects until close, which was mid-June time frame.

So that recognition at the beginning of the quarter was a little bit greater than we anticipated. And then secondly, yes, they were subject to some of the delays that we see across our service business in terms of some projects being pushed out. So 2.1 in terms of the Pro-ficiency contribution to the fourth quarter.

And it does not change our expectation in terms of $15 million to $18 million contribution in there Immunetrics fourth quarter contribution, I don't have a -- fourth quarter is not a acquisition revenue. They had fourth quarter contribution revenue in '23 as well as fourth quarter '24.

And our integration of that business now is pretty well complete, and we're servicing those opportunities from the combined staff our two organizations. So don't have a breakout of that for the fourth quarter..

That was all really helpful. And just as you were talking at for 2025, kind of a similar question on Pro-ficiency. It seems like you're counting Pro-ficiency revenue as all inorganic, despite it kind of closing, like you said in the fourth quarter.

So just hoping that you can help us bridge your organic versus inorganic growth expectations for next fiscal year and if you can, by both software and services..

Yes, don't provide it other than our expectation that the software will be in the range of 55% to 60% of our total revenues. I don't have a breakout in terms of software versus services.

But -- or, let's call it, SLP like business, everything except Pro-ficiency, our guidance is based upon the assumption of that organic growth will be in the 10% to 15% range, similar to our guidance for last year, fiscal year '24, which was 10% to 15% for which we came in at about 14% growth.

And then 2025 proficiency contribution should be in that range of $15 million to $18 million of.

Our next question is from Matt Hewitt with Craig-Hallum. Please proceed with your question.

Good afternoon, Thanks for taking the questions. Maybe first up, could you help us bridge the gap on your EPS guidance for next year? Just trying to figure out significantly higher. And then I was modeled in -- the Street was model.

I'm just trying to figure out what the doubt there?.

Thanks. Yeah, I think it's in the context of the two line items of adjusted diluted EPS versus diluted EPS -- we've added adjusted diluted EPS as it seems to be the commonality with our peers so that there could be some comparability.

Will, do you want to provide some color in terms of the differential there?.

Sure. Thanks for the question, Matt. And I would refer to the reconciliations that we have in the press release. One of the things we did for FY '24 is we've got the reconciliation of adjusted EBITDA to net income. And for the most part, we've got typical exclusions there that we've communicated in the past.

The adjusted diluted EPS to diluted EPS, we've really just taking transaction-related expenses as the adjustment.

And based on the feedback we're getting from folks as well as sort of comparative in the industry, it made sense to standardize in FY '25, so for this next fiscal year to just have the reconciliation items that are in the adjusted EBITDA be the same adjustments that are going to be for the adjusted diluted EPS with the tax impact as well.

So FY '24 was just an adjustment for transaction-related expenses. FY '25 will have a consistent approach with the way we do the adjusted EBITDA, just to simplify it..

That's helpful. But I guess, I was looking for -- I mean, are you expecting $5 million in acquisition-related expenses. There's a pretty big delta from where everybody was before on an adjusted basis to your new guidance. There was a -- that's a pretty big step up. And I'm just trying to figure out what is the bucket that you're seeing the big increase.

I'm guessing it's M&A expenses, but I just want to make sure I'm thinking about this right..

Yes. Right now, we don't have any M&A expenses assumed in the guidance, which it excludes any acquisitions. So to the extent that if you look through the EBITDA reconciliation, the big drivers there are depreciation and amortization expense and stock comp expense.

I mean those combined were about $11 million, $12 million in FY '24 and will have an increase with the additional intangible amortization from the Pro-ficiency acquisitions. So that total probably goes to about $14 million, $15 million of adjustments..

Got it. All right. And then shifting gears, Shawn, if you could provide a little bit of an update on how the integration with Pro-ficiency, particularly on the sales and marketing efforts.

Are those teams -- have they been fully trained at this point? What are the cross-selling pipeline is looking for?.

Yes.

We've integrated the sales and marketing personnel that came to us in the acquisition for Pro-ficiency into our consolidated business development team, undertaken training dissemination of presentation of capabilities to bring people up to speed in terms of our new products and services that come into fold -- out in the marketplace, we've transitioned over the last couple of years.

Our sell-through points and historically have been the discovery department for ADMet Predictor and then primarily the modeling and simulation organization on the clinical side.

Previous to this year, we invested time and effort in expanding to a third touch point, the clinical management teams that consolidated group of personnel that manage a drug program, of which the modeling and simulation representative has at that table.

-- but extending our relationship into that area, I think has been one of the keys to supporting our pretty healthy service growth in a very challenged market environment, and that has been the result of identifying opportunities to impact positively a drug program that perhaps the modeling and simulation department has been already used up has been cut certainly cost constrained environment has made those budgets a little tighter.

We opened ourselves up for our service business to be funded out of the clinical trial budget. And that, I think, is supported and wins in the sale of our success on our service side during a challenging time.

Long would it enter into through Pro-ficiency's, we're now undertaking that same extension out to their touch points, which are the clinical operations team and the medical affairs team within our clients.

And -- so first step in terms of engagement in the marketplace externally from the company is to start extending those networks and building those relationships into those new budget opportunities that are available to us. And that's going very well.

I mean we're three months into the close -- after the course of the acquisition, so it's a short window of time, but I think we're moving pretty well there..

Thank you. Our next question is from David Larsen with BTIG. Please proceed with your question..

Hi, Can you talk a little bit more about the software revenue growth on a year-over-year basis. I think I heard you say it was down 6% year-over-year organically.

Is that correct? And how does that compare to your own internal expectations? And what was that internal growth rate or organic growth rate for the year, please?.

Yes. Will, can you just remind us of the specific growth rates on the software side as I flip through in mind, making sure I get it right.

I mean, the growth rate was down in the fourth quarter but up 12% for the year, 9% organically, right?.

Yes. I mean, total revenue for the year, yes..

So yes, fourth quarter revenues were down on the software side. Really, the challenge there has been -- was twofold. One, we did have a couple of renewal slippages out past August into the first quarter. But our real challenge has been in the Asian market. It's 1 of new issue. It's one that's really been in flux since COVID, quite frankly.

And a particular focus for us as we move into fiscal year '25. We've been overgrowing, if you will, in our North America and European markets and compensating for that. But it's an area for improvement for us going forward..

Okay. And I think I see the software gross margin of around 72% in the fourth quarter. It's usually in the 90% range. So -- should we think about that as being like an unusual quarter because of some renewal timing and you'll get back up to that 90% range in 1Q of next year.

So -- see that organic software revenue growth to back up starting in fiscal 1Q?.

Yes. Our software revenue margin is impacted. I don't know that it went all the way down into the 70s, I think was in the mid-80s.

And so some impact there, as we indicated earlier, that the software side of the proficiency business is down towards 80-ish percent compared to our 90-plus percent in terms of our existing software or legacy software products. So some impact there.

And the Pro-ficiency, overall profitability, both in terms of software, as I've just described and on the service side. We see -- means we're improving those as we move through the course of the year. We improved it tremendously through the acquisition in terms of rationalizing some of the overhead expenses of that business unit.

It starts in the fourth quarter and the start of fiscal year '25 with a profitability profile that on a percentage basis is a little less than our legacy model, if you will.

The overall company EBITDA guidance of 31% to 33% underlying that on the legacy side, SLP, probably could have been up towards that goal that we set for ourselves at 35% to 40%, but Pro-ficiency impacts that in '25. We believe we -- in the longer term into '26, we'll get them in line with our profitability profile.

But that will continue to improve to get to that level through the course of 2025. So on the software side, specifically back to your question, some impact from Pro-ficiency there, I think we'll gradually see some improvement as we go quarter-to-quarter through '25..

Great. One more quick one. I think the service gross margin you reported, am I seeing this correctly minus 4% in fiscal 4Q.

And I'm assuming that, that's from Pro-ficiency, and it's my understanding that Pro-ficiency is very much tied to like the clinical trial activity, basically training the folks at the site on how to basically implement the clinical trial that's in line with basically the trial master file.

So can you maybe just talk about perhaps, I don't know, the mix of clinical trials that you're supporting, for example, if there's more obesity health-related clinical trials, if you're seeing a slowdown in like perhaps gene therapies because the funding environment, I would think would be very good. Just any more color there.

And I think you hired a couple of scientists last quarter -- are they being -- like are they selling -- just any more color on that, you expect a lift to that service gross margin?.

Yes. Two-part answer. I'll talk to the proficiency side of your question. And then, Will, maybe you can talk to the fourth quarter margin with some re-class issues there. Pro-ficiency in terms of, yes, supportive clinical trial activity on the simulation side as its primary focus, business driver, if you will.

No specialty in terms of singular therapeutic areas. They're portfolio of past projects spans most all therapeutic areas tends to be more valued in difficult complex clinical trial protocols where obviously a more aggressive comprehensive training ahead of its initiation benefits protocol adherence more significantly.

But there's no therapeutic area sort of concentration in terms of their portfolio of activities.

Will, do you want to talk about the margin?.

Sure. And I can answer this for the software analyst services. So Q4 certainly has some true-ups that we do when we look at the -- on an annual basis when we go through the audit process. 72% you mentioned for software for the quarter and Q4. That was primarily due to just the Immunetrics software impact coming in a bit lighter.

But as Shawn mentioned, mid-80s or where we would expect to see that going forward. I used to be in the 85 to 90 range, and we mentioned there'd be some decline there. On the services side, for Q4, we did look through the year. I think I mentioned it during the call. There was an adjustment that we made, it was about $2.5 million.

Looking through the year for international efforts that we have with employees and services group, they're all worked through a professional employer organization or a PEO. We reclassed those from G&A expense for the year into services. We did that in Q4.

So that, again, looking forward, the total year is 30% services margin as we continue going forward and leveraging the efficiency business and our business, looking for upsides with billable utilization focus that 30% to 40% range is where we'd be targeting..

Thank you. Our next question is from Scott Schoenhaus with KeyBanc Capital Markets. Please proceed with your question..

I wanted to touch on the 10% to 15% organic growth outlined for next year. As we sit here today, you said your guidance contemplates levels from what we're seeing here today, which is clearly depressed you had the same kind of guidance -- organic revenue guidance last year.

So maybe walk us through what's expected or built into the low end of that range and the top end of that range? And maybe specifically also on like where you think the biotech end market is expected to be for next year?.

Yes. We're all trying to throw that dirt and read the tea leaves in terms of we are only moving forward, and we certainly see some positive things I saw the Thermo CEO spoke very positively today of market opportunity into 2025. And we see a lot of positive too.

Our discussions of late in terms of clients budgetary processes that phenomena of our industry in which we've got a few dollars left to spend this year. We lose it if we don't spend it by the end of the calendar year. Some great discussions taking place right now, and I want to be optimistic, but I'm also conscious.

We've seen upticks in funding that have been short-lived and pulled back. And therefore, our approach here in terms of guidance for '25 is pretty -- is conservatively set based upon okay, the market as it is today. The range of 10% to 15% organic growth. We came in higher end of that range this year.

I've got confidence in our organization, we've executed well. in a challenging market over the last 2-year window of time and would be confident in terms of our ability to perform at the high end of that range, but guidance being what it is, we'll take a conservative approach and carry forward our 10% to 15% from last year.

But poised, if current market conditions do run on the uptick and start to improve, this fourth quarter of the calendar year or into '25 that we should be able to support and grow with that growth as well into next year. But certainly, at this point in time but prudent that we take a conservative approach to setting our guidance for next year..

So I'm assuming you're meaning that you have very little assumptions of a return or reacceleration of the biotech end market, given all that commentary is that.

No. I have hoped for, but from a guidance sort of perspective, let's start to accrue before we count happen..

And then as a follow-up, I think you mentioned in your prepared remarks, Shawn, that you saw some slip in renewals on the GastroPlus.

Can you provide maybe more color on that contract? Was it a large pharma? What was the decision there to not renew or a pushout of the renewal -- can you just give us more color on what happened there on the GastroPlus side?.

Yes. The pushouts it's not a nonrenewal decision. It's get the paperwork through and get the documentation purchase order and not get that all done by August 31 to our funky fiscal year here. August, a lot of people are on vacation in a just it's not an excuse, but it sometimes is often difficult to get things closed.

I mean the only challengeable one in the mix there is that in the fourth quarter, we did have a renewal situation where we had a specific client that acquired a second company during the course of the year and, in fact, then as well closed one of their sites. And so that was a situation where we had three renewals come up.

The original company, the acquired company, and within that original company, their license configuration was site-based.

And so in that situation, which is when you look back over our history in terms of the differential between mid-90 renewal rates on software and 100%, what is that difference? I mean it's either companies going bankrupt and departing the landscape or consolidation. And so we had one of those in the fourth quarter results.

The slippage ones are timing and aren't takeaways of our book of business, if you will. It's only those acquisition scenarios that can be troublesome..

Our next question is from Francois Brisebois with Oppenheimer & Company. Please proceed with your question..

Hi. Thanks for taking the questions. Just two here. I was just wondering if you can give us a little more explanation or color around that TAM doubling that you talk about.

It's not necessarily a biosimulation play, but with Pro-ficiency here, how do you get to a doubling of the TAM? And then I know you're still getting this acquisition integrated, but any other color on more M&A? Or is it just one step at a time. This is a big acquisition.

Let's get this one figured out for the time being?.

Sure, Frank. Yes, I mean, the TAM incremental with the Pro-ficiency of the incremental $4 billion is pretty evenly split between the two markets, our assessment of what is the market for the training activity in clinical trial space, an estimate of what is spent in that area across clinical trials, all phases, all therapies, et cetera.

Of course, specifically, the training aspect of a clinical trial. And on the MEDCOM side, their marketplace is twofold. It's more predominant in the regulatory process, preapproval process and in part as well sourced and medical communications agency work that's done post approval in the commercialization process for a new drug market entry.

And their business is skewed a little bit towards the regulatory process. And so therefore, we've calculated that TAM in that same disproportionate towards the regulatory market activity there.

Acquisitions are a continuous process in terms of working in the landscape and following companies that are on your radar and adding and deleting those that come and go. We've certainly devoted resources to the integration process of our most recent acquisition. But our strategy is unchanged in terms of supplementing organic growth with acquisitions.

I'd say, yes, we're going to take a little bit of a breath and in terms of the vigor there, but it is not on the shelf and not active at any point in time and should an opportunity arise that fits our criteria there was certainly regarded at that opportunity. And we will continue to do acquisitions.

So we've gone from a we used to get questions, when are you going to do the next acquisition because you haven't done -- We've done one in each of the last two years. Our cadence is, I think, good there. No guidance that we'll do one in 2025. But certainly, the underlying activity that could lead to that is active..

Our next question is from Constantine Davides with Citizens JMP. Please proceed with your question..

Thanks, Shawn, this -- correct me if I'm wrong, this is the time of the year, you typically would look to flex price.

I'm just wondering how that would look going forward in terms of how much price you would look to increase? And how would that compare to last year?.

Yes, it is sort of our adjusted price list time frame of the year. And our approach this year around was somewhat similar to last year. If the outcome was similar to last year. Historically, that price increase can be 5%-plus sort of level.

Typically, you don't yielding 100% of that large clients or in particular market segments, you're looking to discount to gain footholds. two years ago, not last year, not fiscal year '23 by fiscal year '22, we're a little bit more aggressive.

It was a start on, I'll call it, peak of inflationary macro environment and what not, came back down in fiscal year '24 and as we enter fiscal year '25, relatively comparable to last year..

Great And then I guess just one follow-up on operating expenses. For the past few years, sales and R&D growth has kind of occurred at a clip that exceeds sales growth.

Are you going to start to see a little bit more leverage in fiscal '25 on those line items?.

Yes. We -- true. We've invested in sales and marketing and R&D. Keep in mind that this past year, the re-class where we initiated the beginning in the first quarter, at the beginning of the year and re-classing costs out of G&A into gross margin.

Some of that's gone into sales and marketing and R&D overhead costs that follow the people that are working in those line items, if you will. But certainly, incremental to that, we've made investments that I think are paying off.

When I look to the execution and success we've had in double-digit growth and stepping up our growth in fiscal year '24, that in good part is due to those business development resources that we have -- we've built and gives us the confidence when we make an acquisition, like a proficiency acquisition that we have the infrastructure on the business development side to leverage those products and services, new products and services going forward.

So we will get more leverage, but I think we are already getting the leverage out of the business development side.

And on the R&D side, a great year with delivery of significant releases across all areas of our software platform that has been delivered by that R&D group, which is supplemented with the benefit of some type collaborations with large pharma clients as well as the regulatory environment.

You may have noted that we've had a recent FDA have another FDA grant collaboration we're engaged. So overall, I think we made some investments there in R&D and sales and marketing. I think we're getting the benefit of it and that benefit will accrue going forward.

That said, overall, we're particularly focused in terms of getting the business back to historical profitability levels at 35% plus adjusted EBITDA level and I feel good in programs that we've initiated that will move us into that direction in '25. And I think we'll have the potential to accrue benefit beyond that as well..

There are no further questions at this time. I'd like to hand the floor back over to Mr. Shawn O'Connor..

Thanks again, everyone, for joining our call today and your interest in SLP. I'll note as well for those in terms of clearing on market conditions and we're wrapping up our participation in two of the most significant conferences in our -- at least on the biosimulation side. One is wrapping up today and another occurs in a couple of weeks.

The AATS PHarmSci 360Conference and the ACOP conference next month, two significant conferences for us and look forward to the activity and the type generates. Also on the horizon or conference attendance by myself at Stephen's conference and a BTI investor conference virtual conference, I believe it is next month, and hope to see many of you there.

With that, we'll close off the call. And again, thanks for joining us today..

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation..