Simulations Plus , Inc. (NASDAQ:SLP), a leading provider of simulation software for pharmaceutical research, has reported its third-quarter fiscal 2024 results, which aligned with the company's expectations. The company saw a 14% increase in revenue and reported diluted earnings per share (EPS) of $0.15, with an adjusted EPS of $0.19. The acquisition of Pro-ficiency is expected to enhance Simulations Plus's offerings and contribute to future earnings. Despite higher transaction costs impacting EPS, the company remains on track to meet its full-year guidance, with projected revenues of $69 million to $72 million.
Key Takeaways
- Simulations Plus reported a 14% revenue growth in Q3, with a diluted EPS of $0.15 and an adjusted EPS of $0.19.
- Software and Services segments grew by 12% and 18%, respectively.
- Pro-ficiency acquisition is progressing well and expected to contribute $3 million to FY2025 earnings.
- The company reaffirmed its fiscal 2024 revenue guidance of $69 million to $72 million, with a 15% to 20% year-over-year growth.
- Quarterly cash dividend discontinued to prioritize growth investments.
- Total backlog stood at $19.6 million at the end of Q3.
- Aims for a long-term adjusted EBITDA margin of 35% to 40%.
Company Outlook
- Simulations Plus expects to meet its fiscal 2024 guidance targets, with total revenue forecasts between $69 million to $72 million.
- Year-over-year revenue growth is anticipated to be in the range of 15% to 20%.
- Adjusted diluted EPS is projected to be $0.46 to $0.48 for the fiscal year.
- Fiscal year 2025 guidance will be provided in October.
Bearish Highlights
- The company experienced higher than expected transaction costs, leading to a decrease in EPS guidance from $0.54-$0.56 to $0.46-$0.48.
- General and administrative costs have increased due to new hires and the acquisition of Immunetrics.
Bullish Highlights
- The market funding environment has improved, especially for biotech companies.
- The integration of Pro-ficiency is on track, with expected margin improvements and contributions to future earnings.
- The demand environment for clinical trial solutions like Pro-ficiency is strengthening.
Misses
- Adjusted EPS was reduced due to higher transaction costs, excluding these costs, the adjusted EPS would have been $0.54 to $0.56.
Q&A Highlights
- Simulations Plus discussed the success and integration of Pro-ficiency.
- The company highlighted the anticipated improvement in Pro-ficiency's margins over time through technology investments.
- Pro-ficiency's revenue growth is closely tied to the activity of clinical trials, which is expected to increase.
Simulations Plus concluded the earnings call by expressing appreciation for the team's efforts and looking forward to concluding the fiscal year in October. The company's solid financial profile, characterized by no debt and a strong focus on growth, positions it well for the upcoming fiscal year.
InvestingPro Insights
Simulations Plus, Inc. (SLP) continues to demonstrate a robust financial profile, underscored by its latest quarterly performance. In light of the recent fiscal results, there are several key metrics and InvestingPro Tips that investors may find insightful.
Firstly, the company's market capitalization stands at a solid 936.49 million USD, reflecting the market's confidence in its business model and future prospects. Additionally, Simulations Plus boasts a high gross profit margin of 75.14% for the last twelve months as of Q2 2024, which is indicative of its efficient operations and strong pricing power in the simulation software industry.
Despite a strong gross profit margin, the company is currently trading at a high earnings multiple, with a P/E Ratio of 88.18. This could suggest that the market has high expectations for the company's future earnings potential, which aligns with the company's positive outlook and anticipated revenue growth.
Investors should also note that Simulations Plus has maintained dividend payments for 13 consecutive years, showcasing its commitment to delivering shareholder value. This is particularly noteworthy as the company has decided to discontinue its quarterly cash dividend to prioritize growth investments, a move that may be seen as a strategic reinvestment into the company's core business areas.
For those seeking more detailed analysis and additional insights, InvestingPro offers a range of tips, including 10 additional InvestingPro Tips for Simulations Plus, which can be accessed at: https://www.investing.com/pro/SLP. To enhance your investment research, consider using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
In conclusion, while Simulations Plus faces the challenge of trading at a high P/E ratio relative to near-term earnings growth, the company's historical performance and strategic investments may well position it for sustained profitability and shareholder returns in the future.
Full transcript - Simulations Plus (SLP) Q3 2024:
Operator: Greetings, and welcome to the Simulations Plus Third Quarter Fiscal 2024 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 call is being recorded. It is now my pleasure to introduce Lisa Fortuna from Financial Profiles. Ms. Fortuna, you may begin.
Lisa Fortuna: Good afternoon, everyone. Welcome to the Simulations Plus third quarter 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 anticipates 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 O'Connor. Please go ahead.
Shawn O'Connor: Thank you, Lisa. Good afternoon, everyone, and thank you for joining our third quarter fiscal 2024 conference call. Results for the third quarter of fiscal 2024 were in line with our internal guidance. Strong performance in both our Software and Services segments delivered solid revenue growth of 14%, diluted earnings per share of $0.15, and adjusted diluted earnings per share of $0.19. Given our solid performance in the first nine months and the acquisition of Pro-ficiency, we are on track to achieve our recently revised full-year revenue guidance. As we noted last quarter, the market funding environment continues to improve over last year. Biotech funding is starting to show signs of recovery, most notably for companies that have drug candidates in the clinic. We continue to be cautiously optimistic about our large pharmaceutical client spending. Right now, we see a range of spending patterns among large pharmaceutical companies; some are increasing its expenditures, others remain conservative, and with most falling somewhere in between depending on various internal and external market factors. Overall, the market is better positioned today compared to a year ago. Moving to our Software segment. Software revenues increased 12% in the third quarter and were up 14% for the nine-month period. We saw good renewals, upsells and new logo activity. However, there has been some impact from ongoing churn in small biotech, and the Asian market still continues to lag overall market growth. Our Cheminformatics business unit delivered 15% revenue growth in the third quarter and 12% for the fiscal year-to-date. This quarter's growth was once again driven by higher revenues for ADMET Predictor. Additionally, there were 15 new customers and 10 upsells for this business unit in Q3. Our Physiologically Based Pharmacokinetics, or PBPK, business unit had a 7% revenue increase in the third quarter and 9% for the fiscal year-to-date. The PBPK business unit added 14 new customers and booked eight upsells with existing customers. We were excited to launch GPX, the next generation of physiologically based pharmacokinetics, biopharmaceutics, modeling and simulation software, and believe it will become a meaningful addition to our suite of leading-edge solutions. Initial client reaction has been very positive. Our Clinical Pharmacology & Pharmacometrics, or CPP, business unit grew 13% during the quarter and 18% for the fiscal year-to-date. During the quarter, we added 13 new customers and had three customer upsells. Revenues in our Quantitative Systems Pharmacology, or QSP, business unit increased 80% for the quarter and 78% for the fiscal year-to-date. As a reminder, quarterly results can be lumpy for QSP based on the high ticket price per license and a smaller pool of end users. Turning to our Services segment, revenues increased 18% during the third quarter and 21% for the nine-month period, with solid bookings and a healthy pipeline of active opportunities. Our large pharma clients continue to exhibit cautious spending patterns, but we're seeing good lead activity, which is a positive sign. Total backlog at the end of the third quarter was $19.6 million, which is a robust level as we enter the final quarter of our fiscal year. Services revenues in our CPP business unit were strong, up 27% in the third quarter and 16% for the fiscal year-to-date. In our QSP business unit, Services revenue grew 49% in the third quarter and 74% for the nine-month period, benefiting from immunology and oncology model projects. Services revenue in our PBPK business unit decreased 10% for the third quarter and increased 4% for the fiscal year-to-date. We continue to encounter client source data delays impacting the initiation of contracted projects. Moving on to our recent news, on June 12, we announced the acquisition of Pro-ficiency, a leader in providing simulation-enabled performance and intelligence solutions for clinical and commercial drug development. The acquisition brings together our collective expertise in simulations, AI technologies, and a focus on science, creating a one-of-a-kind platform that spans across the drug development continuum. Although it's only been a few weeks, we're pleased that the Pro-ficiency integration and collaboration are progressing in-line with our internal plan and schedule. Additionally, our customers are showing interest in learning more. We will be able to provide a fuller update on our year-end call in October. With that, I'll turn the call over to Will.
Will Frederick: Thank you, Shawn. To recap our strong third quarter performance, total revenue increased 14% to $18.5 million, Software revenue increased 12%, representing 64% of total revenue, and Services revenue increased 18%. On a trailing 12-month basis, total revenue increased 20% to $67 million, Software revenue increased 22%, representing 60% of total revenue, and Services revenue increased 17%. Q3 total gross margin was 71% compared to 82% last year, with Software gross margin at 88% versus 91%, and Services gross margin at 41% versus 63%. For the trailing 12 months, total gross margin was 73%, Software gross margin was 88%, and Services gross margin was 48%. The year-over-year Services gross margin decline was primarily driven by the previously communicated shift of our Services personnel to cost of revenue departments from SG&A department. Turning to Software revenue contribution by business unit for the quarter, PBPK was 56%, Cheminformatics was 20%, CPP was 18%, and QSP was 6%. For the trailing 12 months, PBPK contribution was 54%, CPP was 20%, Cheminformatics was 19%, and QSP was 7%. For the trailing 12 months, our customer renewal rate was 92% based on fees and 84% based on accounts. For the trailing 12 months, average revenue per customer increased to $95,000. Shifting to our Services revenue contribution by business unit for the quarter, CPP was 48%, QSP was 29%, PBPK was 19%, and [REG] (ph) was 4%. For the trailing 12 months, CPP contribution was 44%, QSP was 31%, PBPK was 21%, and REG was 4%. Total Services project worked on during the quarter were 181, and quarter-end backlog increased to $19.6 million. Anticipated revenue from backlog within 12 months increased to approximately 91%. Turning to our consolidated income statement for the quarter, R&D expense was 7% of revenue compared to 6% last year, sales and marketing expense was 13% of revenue, up from 10% last year, and G&A expense was 41% of revenue, up marginally from 40% last year. G&A expense for the quarter included $0.9 million of transaction-related expenses for the acquisition of Pro-ficiency. Total operating expenses were 61% of revenue compared to 57% last year, income from operations was 10% of revenue compared to 25% last year, and income before income taxes was 21% of revenue compared to 30% last year. Year-over-year expense increases were primarily due to the Pro-ficiency acquisition costs and cash and stock-based compensation increases due to headcount additions, primarily from the Immunetrics acquisition last year. Other income was $2 million this quarter compared to $0.8 million last year, primarily due to a $0.6 million increase from lower fair value of the Immunetrics' earnout liability and a $0.4 million increase from higher interest income. Net income for the third quarter was $3.1 million, or 17% of revenue compared to $4 million, or 25% of revenue last year. Diluted earnings per share were $0.15 compared to $0.20 last year, and adjusted diluted EPS, excluding the impact of acquisition costs, were $0.19 compared to $0.21 last year. Third quarter adjusted EBITDA was $5.7 million compared to $6.5 million last year at 31% and 40% 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 third quarter was $0.8 million compared to $0.9 million last year, and our effective tax rate remained constant at 19%. Our current effective tax rate estimate for the full fiscal year remains between 20% to 23%. Turning to our balance sheet, we ended the quarter with $119 million in cash and investments. Following the acquisition of Pro-ficiency in June, we had $19 million in cash and investments, and remain well-capitalized with no debt, strong free cash flow and a continued commitment to our capital allocation strategy and corporate development initiative. Lastly, today we announced that our Board of Directors has determined to discontinue the company's quarterly cash dividend with the final payment in August. The Board's decision reflects our priority to invest in growth initiatives that will generate long-term shareholder value versus continuing the nominal dividend. I'll now turn the call back to Shawn.
Shawn O'Connor: Thank you, Will. Our third quarter results reflected strong performance in both our Software and Services segments. As we said last quarter, market conditions have improved compared to last year, but these changes require time before they translate to actual bookings and revenue. As such, we remain cautiously optimistic. With our strong performance in the first nine months of the year, combined with the expected $3 million contribution from Pro-ficiency and the newly formed Clinical Simulations and Medical Communications business unit, we are well-positioned to meet our stated fiscal 2024 guidance targets, which include: total revenue between $69 million to $72 million, year-over-year revenue growth in the range of 15% to 20%, Software mix between 55% and 60%, Services mix between 40% and 45%, diluted earnings per share of $0.46 to $0.48, and adjusted diluted earnings per share of $0.54 to $0.56. Of note, we are adding adjusted EPS to provide clarity on our operating profitability and separate the impact of transaction costs related to the Pro-ficiency acquisition. Our GAAP guidance reflects an adjustment to diluted EPS to reflect the GAAP impact of these same acquisition-related charges and the fourth quarter reporting which consolidates the acquisition. We will be providing our fiscal year 2025 guidance in October when we report our fourth quarter and full-year fiscal 2024 results, but are reaffirming that the acquisition of Pro-ficiency is expected to be accretive to our fiscal year 2025 EPS, factoring in the loss of interest income. Before turning to the Q&A, I want to take the opportunity to reinforce the key differentiators of our story. Simulations Plus is a leading provider of biosimulation, simulation-enabled performance and intelligence solutions, and medical communications for the biopharma industry. The new CSMC business unit brings experience and content simulation developed with AI technologies to enhance clinical trial success, data analytics and medical communications. With the acquisition, we have doubled our total addressable market to $8 billion, and have expanded our portfolio to serve pharma clients from the preclinical phase through to commercialization. We have a compelling customer value proposition and a strong competitive position with high barriers to entry. We have an attractive financial profile with a strong balance sheet and no debt. And finally, we have a seasoned management team with scientific leadership and significant expertise in modeling and simulation. Thank you for your time today. And with that, I'll now turn the call over to the operator for your questions.
Operator: Thank you, Mr. O'Connor. We'll now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question is from Max Smock with William Blair. Please proceed with your questions.
Christine Rains: Hi. It's Christine Rains on for Max Smock. Thanks for taking our questions. Well, I understand you're not providing guidance today. On a high level, how should we think about 2025 organic revenue growth potential given current improving microenvironment and bookings and backlog visibility? Also, on the inorganic side, are you still thinking about a $15 million to $18 million contribution from Pro-ficiency in 2025? And how should we think about the cadence and breakdown between Software versus Services? Thanks.
Shawn O'Connor: Yeah. Thank you very much for the question. And yeah, I know everyone is anxious, but we do give guidance in October for fiscal year '25. From a step-back objective sort of perspective, we've always stated a growth rate. Biosimulation market as a whole is growing 12% to 15% in the last two years. We've given guidance of 10% to 15% in a difficult market. The potential exists for the market improvement that we're starting to see this year to help contribute to an advancement of that in fiscal year '25. So, we've really not seen that translate into bookings and activity as yet this year, so remain cautious in that regard. Certainly, the funding in biotech has improved and that's a more active environment, but the large pharma market, which makes up the majority of our client base, still is a mixture of spenders and non-spenders with most people pretty much holding tight. So, as we enter the year in October, our timing in terms of giving guidance benefits from the fact that as we enter the back half of the year, our clients start going through their fiscal year '25 budgeting cycles and we get some visibility to that, and that always contributes to our ability to give guidance into next year. No change in what we've said in terms of the Pro-ficiency contribution in fiscal '25, the $15 million to $18 million we said at the announcement of the transaction. Certainly, potential for that number to come in better than that, but at this point in time, $15 million to $18 million is our early expectation.
Christine Rains: Great. Thanks. That makes a lot of sense. On margins, we were a little surprised to see adjusted EBITDA margin come in a little short of expectations, despite outperformance in Software revenue. So, hoping you can provide some more color on key puts and takes impacting margins in the quarter.
Shawn O'Connor: Yeah, it's come down a bit. We've been the last couple of quarters at 31%, 32% level in terms of adjusted EBITDA, and we certainly target that to be in the 30% to -- 35% to 40% range. Temporary sort of situations, contributions in terms of expenses, we had a pretty significant software release during the quarter of GPX to the marketplace that had some costs associated with that. We're benefiting quite frankly globally from incredible retention and recruiting efforts, and seeing very little churn in terms of our employee base. And typically we see more of that and -- so our hiring up has accumulated more quickly this year. That's contributing a little bit to it, and we'll even out over the course of the coming quarters. So, those two factors I think are contributing a bit there, but we remain targeted in the 35% to 40% range. And as we said with the announcement, Pro-ficiency will add a little bit of pressure to that in the beginning, but we believe that they will fit our long-term profile as well.
Christine Rains: Great. That's also helpful. And just one last one for us. On the PBPK services side, with that being down this quarter due to client source data delays impacting the initiation of contracted projects, just confirming that this work is delayed and not canceled. And if so, should we expect to benefit from this work materializing in Q4 or 2025?
Shawn O'Connor: We hope to get back on track with a more consistent even-flow PBPK consulting business. If you look back over four to eight quarter trend line, they were contributing a very significant growth quarter-over-quarter for a good part of that window of time. We've encountered of late some contractual situations that the expectations in terms of data readiness to perform those projects has been pushed off, nothing significant in terms of cancellation of those projects, but delay. Whether that delay catches up in the fourth quarter is to be seen and experienced there. If it all caught up, we might be a little challenged in terms of capacity in that regard, but we've had two quarters, maybe two-and-a-half quarters of delays impacting that segment. It tends to cycle through our CPP consulting practice, our QSP consulting practice. We seem to always have one that has some delay challenges. And that portfolio of consulting services usually evens out, and as for this quarter, their growth at 18% was quite strong.
Christine Rains: Great. Thank you for taking our questions.
Shawn O'Connor: Sure.
Operator: Thank you. Our next question is from François Brisebois with Oppenheimer & Company. Please proceed with your questions.
François Brisebois: Hi. Thanks for taking the questions. So, I was just wondering, in terms of the market as a whole, biotech pharma, the XBI and IBB, they've kind of come back a little bit after the first quarter, it was pretty exciting for the space. So, I was just wondering, in terms of your feel for market and potential upside, your cautious optimism, is this based on where we are now, have you seen anything, or was it kind of more exciting after the first quarter and now we're a little more cautious. Any color there would be helpful.
Shawn O'Connor: Yeah, Frank, the two segments, one at a time. On the biotech side, boy, the excitement of seeing that funding, those funding announcements was very positive. That seems to have leveled out, I guess, not gone away, but leveled out, and we're still really waiting for that to translate into contracted business. Certainly, more conversations and pipeline activity there that bodes well for the future, but in terms of that translating to anything different from the growth, the baseline growth, if you will, that we've been experiencing in that segment over the last few quarters, that's yet to come. On the large pharma side, again, we just -- each account has its own antidotal story in terms of budget process and cutbacks and pace. And in those situations, at least from a historical perspective, we often see that where the large pharma, external or internal announcement of cutback in terms of expenses creates a window of pause of time in which purchasing activity, contracting new business slows down. Oftentimes that leads to a flurry as they catch up and programs are still being pushed forward and they need to contribute to the modeling and simulation input into those clinical trial efforts that can't just go away. So, are we more optimistic or more cautious today? We're continuing to work hard within the environment that we've got. There are some bright lines out there in terms of some improvements, but a continuous flow of challenging budgetary decisions on the part of our clients keeps us probably in the same framework of mind that we were in the last quarter or two.
François Brisebois: Okay. Thank you. And then maybe lastly, in terms of the Pro-ficiency updates that you mentioned on the next call, is that all related to guidance? Or what else in terms of updates should we be expecting here from that acquisition? And maybe if you could just touch on the guidance updates, just to clarify here, in terms of the EPS versus what you had announced, is that just related to the acquisition? Just any clarity there on the updated diluted EPS would be helpful. Thanks.
Shawn O'Connor: Yeah. Referring to Pro-ficiency in terms of our guidance into '25, certainly, this will be our first quarter in which they contribute to our quarterly financial results. So, they will come into our commentary just as our other business units. So, in October, we'll comment on progress in terms of the integration of Pro-ficiency, as well as its operating success during the fourth quarter. And it will be included, and we'll give a little bit more detail to its contribution in fiscal year '25 coming up. On the breakout of the EPS, the adjusted non-GAAP EPS as well as the diluted EPS, yeah, change there to answer and respond to some confusing questions in terms of when we announced the change there to provide more clarity in terms of the mix between the impacts of the interest income going away and the transaction costs.
François Brisebois: Thank you.
Operator: Thank you. Our next question is from Matt Hewitt with Craig-Hallum. Please proceed with your question.
Matt Hewitt: Good afternoon. Thank you for taking the questions. Maybe first up regarding Pro-ficiency. I think when you provided at the acquisition call, you spoke a little bit about how their margins, particularly the gross margins, are a little bit below Simulations Plus' historic margins, and I think you had commented that over time you expect those to get in-line with the company. I think you've mentioned that today. Is that going to be a gradual kind of improvement in the Pro-ficiency, or is there some type of a trigger event that would get those to snap in-line on a faster pace?
Shawn O'Connor: Yeah, Matt, a little bit of both, I guess. The profile of their margin is, call it, similar to like our acquisition of Immunetrics, where you've got a business that's contributing both Software and Service revenues. And so, their margin is impacted by that mix between higher-margin software and lower-margin consulting revenue dollars. And their margin is impacted by operating efficiencies that are being worked in both sides of the business, most notably continued investment in the technology side, the software side. Their software margin is closer to 80% versus our 90% on the software side, and that's kind of a step function in terms of its improvement as it's mapped out. They've improved quite significantly over the last 12 months to 18 months, getting to 80% by the use of technologies to accelerate, automate, use AI to translate protocol into their training modules that are licensed to clients and work is -- continues in that regard. And so, we see a path getting them to our sort of 90% level in terms of Software margin, and the growth rate of those revenue dollars affects that mix, that mix which is more heavily skewed towards Service than our overall 60/40 split of Software versus consulting revenues -- Service revenues. And so that growth rate will help catch up and impact the overall margin that they contribute as well over time. So, we start out at a low point if you will and it will be mostly gradual through into next year and beyond, but as they release the improvements on the technology side, they'll probably be a little bit of stair step as we move through fiscal year '25.
Matt Hewitt: Got it. And then maybe one question again, I think you mentioned on your call, you've mentioned again this afternoon regarding Pro-ficiency being accretive to fiscal '25 earnings. I'm just curious of what base. And I assume you're referencing the GAAP numbers in that, but are you talking off of fiscal '24 is going to be accretive? Is it based on accretive to where consensus was prior to the day? Just curious what the base was on the accretive guidance for next year. Thank you.
Shawn O'Connor: Yeah, we reinforced in the script that it's accretive in terms of covering the lost interest income that we've been enjoying while those dollars were sitting in investment on our balance sheet. So, they will be accretive and contribute positively to earnings per share covering interest income.
Matt Hewitt: Got it. All right. Thank you.
Operator: Thank you. Our next question is from David Larsen with BTIG. Please proceed with your question.
David Larsen: Hi. Congrats on the revenue beat relative to our model this quarter. Can you maybe just clarify with the EPS guide, was that changed on an apples-to-apples basis relative to the June 12th commentary? Because I had thought that in fiscal 2Q, we were at $0.66 to $0.68, and then on June 12th, it declined by about $0.12 to $0.54 to $0.56 because of the lower interest income and the transaction costs. And now we're at, I think it's $0.46 to $0.48 GAAP, $0.54 to $0.56 adjusted. But if the $0.54 to $0.56 is adjusted and we're adding back the transaction costs, just -- was the EPS guide lowered or not? Just how are you thinking about that, please? Thank you.
Shawn O'Connor: Yeah. Will, I'll ask you to contribute here as well. I know that our expectation in terms of transaction cost was a little higher coming in in terms of the expense that's going to hit in the fourth quarter and that contributed there as well. But Will, you want to add any color here?
Will Frederick: Sure. Happy to answer, David. The apples-to-apples where we had the $0.54 to $0.56 on the diluted and now we've got $0.46 to $0.48, as Shawn was mentioning, the transaction costs, once we had all the numbers then as well as the purchase price allocation got completed, and so we had visibility -- a better visibility into the amortization costs for the quarter, we just adjusted that to the $0.46 to $0.48. And then, to make sure that we had some clarity with regards to what the adjusted EPS would look like without those costs, that's the $0.54 to $0.56.
David Larsen: Okay. So, it sounds like transaction costs, which are, obviously, one-time non-recurring came in a little bit higher than expected. If we exclude those, we're at $0.54 to $0.56. Okay. And then, the G&A costs increased quite a bit sequentially, I think from like $5.5 million in fiscal 2Q to -- is it $7.7 million, so up more than $2 million sequentially, I think, and the stock comp, I think, is up about $100,000 sequentially. Am I reading that correctly? And what drove the higher G&A?
Will Frederick: Yeah. The primary driver there is the hiring of employees as well as year-over-year we brought on the Immunetrics folks. So, in Q3 of this year, we've got Immunetrics team. It was about 20 employees that we brought on in Q4 of last year. So, we certainly have more employees with about 210 or so at this point compared to last year. So, most of its comp costs.
David Larsen: Okay. And I think it's another $1 million from transaction costs in that GAAP G&A number sequentially. Okay. And then, Shawn, I think I heard you say 35% to 40% for the sort of longer-term adjusted EBITDA margin expectation. Is that correct?
Shawn O'Connor: Yeah. That's where we have historically operated in the past and that's always been our target. We've been in below the 35% beginning in the timeframe in which we had compensation creep in the marketplace and had to accelerate compensation programs there and gradually moving that backup, but that's the target that we still shoot for, 35% to 40%.
David Larsen: Okay. And then just broadly speaking, I guess in terms of the demand environment, it sounds like things are accelerating and picking up. Will Pro-ficiency add that -- add to that? It sounds like Pro-ficiency is more like a key opinion leader, sales and marketing type of solution. Just any color on the demand environment would be great.
Shawn O'Connor: Their -- certainly, the software side of the business is tied to clinical trial activity as well, so some of the drivers there are common to ours as well and -- so the same purse strings in terms of pushing drugs through the clinical process will also push their revenue growth as well.
David Larsen: Okay. Appreciate it. Congrats on a good quarter. Thank you.
Shawn O'Connor: Very good.
Operator: Thank you. There are no further questions at this time. I'd like to hand the floor back over to Mr. Shawn O'Connor for closing comments.
Shawn O'Connor: Okay. Very good. Well, I appreciate everyone's attention, and look forward to speaking again as we close our fiscal year in October. Take care, everyone.
Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for joining us today.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.