Simulations Plus Inc
NASDAQ:SLP
US |
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
|
US |
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
|
US |
Bank of America Corp
NYSE:BAC
|
Banking
|
|
US |
Mastercard Inc
NYSE:MA
|
Technology
|
|
US |
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
|
US |
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
|
US |
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
|
US |
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
|
US |
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
|
US |
Visa Inc
NYSE:V
|
Technology
|
|
CN |
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
|
US |
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
|
US |
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
|
US |
Coca-Cola Co
NYSE:KO
|
Beverages
|
|
US |
Walmart Inc
NYSE:WMT
|
Retail
|
|
US |
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
27.22
50.95
|
Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
Johnson & Johnson
NYSE:JNJ
|
US | |
Berkshire Hathaway Inc
NYSE:BRK.A
|
US | |
Bank of America Corp
NYSE:BAC
|
US | |
Mastercard Inc
NYSE:MA
|
US | |
UnitedHealth Group Inc
NYSE:UNH
|
US | |
Exxon Mobil Corp
NYSE:XOM
|
US | |
Pfizer Inc
NYSE:PFE
|
US | |
Palantir Technologies Inc
NYSE:PLTR
|
US | |
Nike Inc
NYSE:NKE
|
US | |
Visa Inc
NYSE:V
|
US | |
Alibaba Group Holding Ltd
NYSE:BABA
|
CN | |
3M Co
NYSE:MMM
|
US | |
JPMorgan Chase & Co
NYSE:JPM
|
US | |
Coca-Cola Co
NYSE:KO
|
US | |
Walmart Inc
NYSE:WMT
|
US | |
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Earnings Call Analysis
Summary
Q2-2024
In the second quarter, the company saw its adjusted EBITDA rise to $7.1 million from $6.2 million the previous year, both accounting for 39% of revenue. Income tax expense increased to $1.2 million with a 23% effective tax rate, up from 18% previously. With $117.5 million in cash reserves, the company is exploring strategic acquisitions and partnerships. Executives expressed a cautiously optimistic outlook, strengthened by solid Software and Services performance. Fiscal 2024 guidance targets total revenue between $66 million and $69 million, with a revenue growth of 10% to 15%. The diluted earnings per share are expected to be $0.66 to $0.68, reflecting a substantial growth of 35% to 39%.
Greetings, and welcome to the Simulations Plus Second Quarter Fiscal 2024 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.
It is now my pleasure to introduce Alissa Fortuna from Financial Profiles. Ms. Fortuna, you may now begin.
Good afternoon, everyone. Welcome to the Simulations Plus Second 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 include -- that involve risks and uncertainties. Words like believe, expect and anticipate refer to our best estimates as of this call. There can be no assurances that these will actually take place. So our actual future results could differ significantly from these statements. Further information on the company's risk factors is contained in the company's quarterly and annual reports and filed with the Securities and Exchange Commission.
With that said, I'll now turn the call over to Shawn O'Connor. Shawn?
Thank you, Alissa. Good afternoon, everyone, and thank you for joining our second quarter fiscal 2024 conference call. Results for the second quarter of fiscal 2024 played out as expected. Our team delivered solid revenue growth of 16%, with strong performance in both our Software and Services segments and recorded diluted earnings per share of $0.20. Given our strong first half results, we are confident we will meet our full year guidance.
Our market continues to show encouraging signs of strength. In the first calendar quarter of 2024, biotech funding has been strong, especially for companies that have drug candidates in the clinic. Biotech companies of this profile can benefit from our full portfolio of modeling and simulation capabilities. For large pharmaceutical companies, funding continues to vary depending on their near-term direction, drug program stability and business outlook, but the overall market is healthier compared to a year ago. For the balance of 2024, we remain cautiously optimistic that demand for our comprehensive suite modeling and simulation software products and services will continue to gain momentum as market conditions improve.
Before turning to our segment performance, I want to spend a few minutes on our topic of artificial intelligence as it relates to drug discovery and development. As I've noted previously, Simulations Plus was an early developer of AI technology and tools to optimize our predictive technologies. As AI technologies continue to develop, we keep pace by improving our use of AI technology to enhance our modeling and simulation solutions. Additionally, AI accuracy is only as good as the data sets used for training and our access to accurate public and private data is a true competitive edge and a barrier to entry in our business.
Our long-standing partnerships and collaborations with both industry leaders and regulatory agencies have granted us significant access to both private and public data, essential for perfecting and refining predictive algorithms. This access to key data is critical to advancing our capabilities in AI-enabled biosimulation well into the future. When you look broadly at the digital economy, our business rooted in science and data stands to meaningfully benefit from evolving AI applications.
Moving on to our Software segment. Software revenues increased 11% in the second quarter and were up 16% for the 6-month period with good renewals, upsells and new logo activity. Overall, we are seeing solid demand in our key markets, except for Asia, which continued to lag overall market growth. Our Chem Informatics business unit delivered 14% revenue growth in the second quarter and 10% for the fiscal year-to-date. This quarter's growth was due to higher revenues from ADMET Predictor, which continued to gain adoption and added another new AI biotech customer. Additionally, there were 8 new customers and 18 upsells during the quarter.
Our physiologically-based pharmacokinetics or PBPK business unit had a modest 2% revenue increase in the second quarter and 11% for the fiscal year-to-date. The PBPK business unit added 6 new customers and booked 9 upsells for existing customers. Momentum is strong for GastroPlus and our expectations for full year growth are strong.
Our Clinical Pharmacology & Pharmacometrics or CPP business unit, delivered the strongest performance with revenue growth of 38% for the quarter and 21% for the fiscal year-to-date. Monolix continues to take market share from its primary competitor and saw another large pharma client commit to transition to the platform. During the quarter, we added 7 new customers and had 10 customer upsells.
Revenue in our Quantitative Systems Pharmacology or QSP business unit decreased 6% for the quarter and increased 77% for the fiscal year-to-date. As a reminder, quarterly results can be lumpy for QSP based on high price per license and a small pool of end users.
Turning to our Services segment. Revenues increased 27% during the second quarter and 22% for the 6-month period with solid bookings and a healthy pipeline of active opportunities. Clients are being cautious about spending, but we're seeing a pickup in RFs, which is a positive sign. There's still lingering volatility associated with start and stop decisions on drug programs and data delivery disruptions related to the completion of clinical trials, but we are managing through this volatility quite well to maintain a steady flow of project activities and utilization of our scientific staff.
Total backlog at the end of the second quarter was $18 million, which is strong as we enter the second half of our fiscal year. Services revenue in our CPP business unit were solid, up 10% in the second quarter and 11% for the full fiscal year despite the impact of volatility.
In our QSP business unit, service revenues grew 78% in the second quarter and 89% for the full fiscal year, benefiting from immunology and cancer model projects. Services revenue in our PBPK business unit increased 39% for the second quarter and 11% for the full fiscal year, delivering strong growth after a sluggish first quarter performance.
And with that, I'll turn the call over to Will.
Thank you, Shawn. To recap our strong second quarter performance, total revenue increased 16% to $18.3 million. Software revenue increased 11%, representing 63% of total revenue and services revenue increased 27%. On a trailing 12-month basis, software revenue increased 22% and services revenue increased 14%.
As we communicated last quarter, the business unit reorganization we implemented in the first quarter to improve our focus on customers also allowed us to evaluate our departmental structure with a focus on continuing to improve operational performance and profitability while providing our investors improved visibility to our progress. As a result, we moved all services personnel into cost of revenue departments. This has no impact on our total cost through net income, but does impact the services gross margin trend compared to prior periods.
Accordingly, Q2 total gross margin was 72% compared to 83% last year with software gross margin at 88% versus 92% and services margin at 44% versus 66%. Approximately $1.3 million of the increase in cost of revenues corresponds to a $1.3 million decrease in G&A expenses.
Turning to software revenue contribution by business unit for the quarter. PBPK was 54%, CPP was [ 24% ], Cheminformatics was 18% and QSP was 4%. For the trailing 12 months, PBPK contribution was 55%, CPP was 20%, Cheminformatics was 19% and QSP was 6%. For the trailing 12 months, our customer renewal rate increased to 93% based on fees and increased to 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 43%, QSP was 27%, PBPK was 25% and REG was 5%. For the trailing 12 months, CPP contribution was 43%, QSP was 30%, PBPK was 22% and REG was 5%. Total services projects worked on during the quarter was 176, a slight decrease from 183 last year, and quarter end backlog increased to $18 million compared to $15.4 million last year. Anticipated revenue from backlog within 12 months increased to approximately --
Turning to our consolidated income statement for the quarter. R&D expense was 7% of revenue compared to 8% last year; sales and marketing expense was 11% of revenue, same as last year; and G&A expense was 30% of revenue compared to 38% last year. Total operating expenses were 48% of revenue compared to 58% last year; income from operations was 24% of revenue compared to 26% last year; and income before income taxes was 29% of revenue compared to 32% last year.
Year-over-year expenses increases were primarily due to the acquisition of Immunetrics, compensation-related increases due to headcount additions, increases in stock compensation and general annual salary adjustments for existing employees. Other income was $0.8 million this quarter compared to $1 million last year, primarily due to an increase in interest income of $0.4 million, partially offset by an increase in the fair value adjustment of the Immunetrics earn-out liability of $0.4 million.
Net income for the second quarter was $4 million or 22% of revenue compared to $4.2 million or 27% of revenue last year. Diluted earnings per share was the same as last year at $0.20, reflecting a decrease in diluted shares outstanding as a result of last year's share repurchase. Second quarter adjusted EBITDA increased to $7.1 million compared to $6.2 million last year, and both were 39% of revenue. 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, any asset impairment charges and any tax provisions or benefits related to these items. 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 second quarter was $1.2 million compared to $0.9 million last year, and our effective tax rate increased to 23% from 18% last year. The increased tax rate was primarily the result of changes in prior year estimated taxes and foreign tax-related differences we benefited last year. Now that we're halfway through our fiscal year, our current effective tax rate estimate for the full fiscal year is 20% to 23%.
Finally, turning to our balance sheet. We ended the quarter with $117.5 million in cash and investments. We remain committed to our capital allocation strategy and corporate development initiative as we continue to seek opportunities for strategic acquisitions, investments and partnerships.
I'll now turn the call back to Shawn.
Thank you, Will. Our second quarter results reflected strong performance in both our Software and Services segments. Market conditions have improved, but these changes require time before they translate into actual bookings and revenue. We remain cautiously optimistic. With our strong first half performance, combined with market improvement, we are well positioned to meet our stated fiscal 2024 guidance targets, which include: total revenue between $66 million and $69 million, year-over-year revenue growth in the range of 10% to 15%, software mix between 55% and 60%, services mix between 40% and 45%, diluted earnings per share of $0.66 to $0.68 and year-over-year diluted earnings per share growth of 35% to 39%.
Before turning to the Q&A, I'd like to take the opportunity to reinforce key differentiators of our story. We're a clear leader in software and consulting services in a large and growing biosimulation market. Simulations Plus is a leader in biosimulation technology leveraging AI tools since the company's inception to optimize drug discovery and clinical development through to and beyond regulatory approval. We have a compelling customer value proposition and 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 turn the call over to the operator for questions.
[Operator Instructions] Our first question comes from the line of Matt Hewitt with Craig-Hallum.
Congratulations on the second good quarter here in a row. Maybe first to follow up a little bit on the macro environment. Obviously, you're starting to see some improvement on the biotech side. You commented on that. I'm wondering, on the large pharma side, how much of that is a funding versus kind of some of the reprioritization and some of the other items that have kind of hit that market over the past few quarters? Is it more just that? Or is there maybe some funding on the large pharma side as well?
Thanks, Matt. During the last couple of years, the environment biotechs versus pharma has been a little different, certainly funding issue on the biotech side. On Pharma side, it's been less funding as it has been circumstances related to the individual company, their outlook in terms of patent exposure on revenue streams, resorting their programs and investments there, their access or acquisition, I should say, of new programs, have created a turn there. You've got a wide range of scenarios from Novo Nordisk get at one extreme and other companies Pfizer as an example that's announced significant cutbacks this year. So most everyone is obviously in between those 2 streams. But there's still a lot of churn and cautiousness and sorting out into drug programs that are going to be invested in or not invested in. Capital funding of those companies has been less of an issue in terms of their situation.
Got it. And then regarding the biotech funding, obviously, it has been -- I think everyone's kind of seeing the strong start to the year. But how quickly do you start to see that from a bookings perspective? I mean, is it pretty quickly? Or is there a little bit of a lag? So when we're seeing the IPOs in the secondary hit, is there a quarter or 2 lag historically? Or does that show up in your revenues right away?
Yes, we'll see. I mean it's anecdotal depending on where their drug candidates are when they get the funding, where are those candidates in terms of the cycle of drug development. Typical sales cycles in our industry can range to -- I need a new seat and I need it tomorrow. I just hired somebody to prolonged budgetary activity. So I know I'm dancing around an answer to your question because I can't give you -- it's a 2-month, it's a 3-month sort of lag to cross -- runs across the spectrum in terms of timing. But certainly, within the first quarter or thereabouts of funding activity. You're not going to see a quick turn in terms of market volume. But in the 6- to 9-month range, I would anticipate many of these companies that are getting funded are going to be advancing their candidates, especially those that are getting funding with drugs in the clinic, looking to go to the next level, close their protocol in the next clinical trial, those are decision points that drive purchasing decisions.
Got it. And then maybe one more for me, and I'll hop back in the queue. But obviously, a big pop in ADMET, I think you quadrupled the number of customers versus last quarter, the new wins, I should say, your upsells were up 3x versus last quarter. Maybe a little bit more color on what drove the strong pop there.
Yes. The technology is getting more acceptance in the marketplace in terms of what we're doing. The questions and those companies were focused on new generative AI solutions, the recognition that, that which is in ADMET Predictor and the contributions we make there, or not just space by many of the new technologies that are being brought to the market. I'm very extremely pleased yet another AI start-up biotech company licensed our ADMET Predictor tool to supplement what they are building separately. I think that endorses that we're not being displaced or replaced in terms of many of these technology build AI technology builds and the value of what we've built and brought to the market for many years here and continue to enhance and improve hazards place and value in the lead optimization process.
Our next question comes from the line of David Larsen with BTIG.
Congrats on a very good quarter. Can you talk a little bit about the sequential increase in GastroPlus revenue. I mean it looked very good to me, especially given that you had the harmonization process last year. Just any more color or thoughts around that would be great.
Yes. Growth in the specific quarter here year-over-year comparison was not tremendous, but this was our step-up quarter as the harmonization process that completed last year set in motion a little bit different seasonality pattern to the year. First quarter to second quarter jump was an even larger jump sequentially for us. And GastroPlus performing quite well. Harmonization process complete, doesn't mean that there aren't licenses that slip from one quarter to another quarter based upon their closure at the end of the given quarter and what not. And so we had some impact from that. Referenced in the prepared comments with regard to softness in the Asian market, where we're seeing, especially in China, some pullback in terms of spending related to well-known issues taking place there. So momentum is very good on GastroPlus. We're performing to our expectations for the year, and look for that to continue to grow at a steady pace in to our overall revenues.
Okay. And then IQVIA in their research business, they showed tremendous growth. It was, I think, one of the best quarters they've ever printed, like I think it was the second or maybe third best for IQVIA. And I'm seeing a very good increase year-over-year in Monolix. I mean is there any correlation to that? I mean how tied is Monolix retook clinical trial activity. Can't it create like virtual clinical trials? Or is there -- I guess, what drove that huge increase there over 30% year-over-year, [ 38% ] year-over-year growth?
Yes. Monolix is doing quite well, made it through its harmonization process last year, since our acquisition of that product line in 2020 has been a fast grower, our fastest-growing software platform, these last few years and continues to perform nice in the marketplace, displacing the incumbent, the leading market share product. This past quarter, we had yet another large pharma company that made the commitment to displace entirely the competitive product and go 100% to the use of Monolix for their needs there. So momentum and progress continues quite strong into the future.
It's tied to clinical trial activity. Yes, not quite so direct that, hey, we've got 10 clinical trials this quarter. We need an extra copy of Monolix. But generally, there is a strong indirect correlation between development programs, clinical trials and the amount of modeling and simulation that is being performed. And therefore, leads to growing staff and our clients that need Monolix on But it's not quite so immediate quarter-to-quarter.
Okay. And then the pricing, the average revenue per customer, I think it came in at like $113,000, that's up from $79,000 in 1Q. I mean, that looked very good to me. The fee retention though, 94%, I mean, you had a great quarter, but it was down from 100% in 1Q. Just anything going on there? What's sort of driving that?
Yes. we've more typically operated at a mid-90s level, 95, 96 in terms of fees. Our performance last quarter was quite extraordinary. And so to be complained not I'm complaining about it, but it created a peak for which we will always be compared to -- so the revenue renewal rate, I should say, this quarter was kind of the norm even though, as I mentioned, there were a couple of renewals that slipped out of Q2. So I think we're in good shape there. The components of the deal, the number accounts that are renewing the stickiness of our price increase as implemented. All of those seem to be performing well at this point.
Okay. Great. And then you recently announced a new corporate development effort. Can you maybe just talk a little bit about what that is? Have you actually made any investments yet? And it's my understanding that this may enable you to capture some of the upside, if you work with a pharma client and you help them launch a successful drug, you could potentially capture some of that very significant revenue stream long term. Is that how it works? Just any color there would be great.
Yes, Dave. Yes, down the program this year and certainly looking at a number of opportunities as we speak here. It was really borne out of our acquisition strategy, which remains first and foremost #1 priority in terms of the use of our capital in terms of identifying additional acquisitions to add to the Simulations Plus product and service portfolio. But in that effort, we encounter a number of situations of companies that have the technology, the capabilities, but for a whole host of reasons may not be acquisition candidates at this stage of the game. And yet their technology that they've built might have some very positive go-to-market strategies, technological linkage integration into our existing technology, all things that we could get benefit from more quickly as opposed to waiting for them to mature and become an acquisition target down the road.
So a number of those opportunities are being assessed as we speak and hope to find some candidates to make our first investments of this nature. Yes, I mean one profile of investment in these companies, maybe companies that their use of our technology, they're charge mission maybe include drug development processes by which our investments and then would allow us to play in the success of their drug programs as well. Our first and foremost sort of filter there will be their technology and its value in terms of our business model, which would be software license revenue and/or service revenue, but it does present an interesting scenario where we might be able to benefit from their drug development program success in the long term.
Next question comes from the line of François Brisebois with Oppenheimer.
I was just wondering, has there been a little bit of a misunderstanding maybe of what differentiates you from these kind of newer AI drug development plays? And in terms of data, is -- you guys have been around for a while and you have very strong data to build the algorithms on and that data has evolved, but is that something that anyone else could kind of shorten or accelerate the path to getting to product? Or is that always going to be an edge for you guys just based on the time that you guys have been in business?
Good question, Frank. I mean, we always get questioned in terms of the impact of some of the new AI technology ventures in the marketplace that have garnered great attention and funding. And -- so the question is abound. And our perspective here is one in which we participated in the development of AI technology for some time ourselves very focused with our ADMET Predictor product and its use in terms of property prediction. And think that we've got best-of-class product out there for that purpose. The technology ventures that have received the spotlight and funding are typically focused in other areas, biomarker identification, lead generation of some nature.
And as I mentioned before, I'm quite pleased endorsing our perspective that we are best of breed in what we're doing and that being displaced by these other investments in technology development, is the fact that yet another one of them became a customer this quarter, and are using our best-in-class property prediction tool supplement what they're developing. So yes, in the context of AI, certainly, feel comfortable with our position and the success we have and we'll have in our focused use of that technology.
In terms of data, as far as the second part of your question, we've obviously been in the game for an extended period of time. Public and private data are the obvious sources. The public data has improved tremendously, both in terms of its volume and accessibility, but its curation is still a challenge. So we've got a rating edge in terms of years of developing a means to curate that data into a meaningful format that can be used in terms of the work that we do.
On the private data side, we've got years of working with collaborative clients and/or partnerships with regulatory agencies that have allowed us access into data that is not readily available out there to anyone, others can make partnerships, others can improve in curation. There is always a need on our part to stay running hard in terms of keeping our advantage in this regard, and believe we have the capability to do that. And again, I come back to where we apply that data in terms of predictive capability and ADMET Predictor or ongoing evidence of our ability to stay ahead of the curve there.
And then maybe lastly, in terms of -- it's been talked about a little bit my previous questions here, but in terms of large pharma versus biotech, do you ever get help kind of selling the program to biotech from large pharma, just because a lot of these pencliffs are coming and so much of the revenue generation and so much of the growth with large pharma comes from acquisitions of these biotechs. I'm just wondering if for them when they're looking at biotech, if it would help them if the biotech was actually using the software as well to compare notes. So has that ever happened where large pharma helps out with biotech clients? Or are they really, really separate pieces here?
I'm searching for an example where it's not a separate piece, Frank. We've never been introduced and strongarmed into a biotech as a result of the large pharma relationship. Our tools may be being used internally at large pharma in assessing some of -- in their due diligence process and assessment of their acquisition targets that could be happening out there. We occasionally get involved in evaluating investment opportunities, but it's not a great frequency. But no, I don't know that there's a lot of leverage probably the biggest impact is as funding goes into the biotech companies. They look to hire people, they hire people from large pharma that are pre-existing SLP product users, and that creates an opportunity to more quickly in terms of sales cycles we were talking about earlier. In terms of sales cycles as to funding leading to an acquisition, probably in between there is their hiring of an individual and then that hiring leads to a knock on our door in terms of filling his tool kit to undertake the efforts internally as a new biotech really funded biotech.
No, that makes sense. And if I could just squeeze the last one in. Do you see the funding was tough for a long time with biotech and it's starting to turn, definitely with the start of this year. But do you ever see -- ultimately, if your guys is one of the big advantages with your software is to cut cost and like go programs that don't necessarily have a good chance of success. Ultimately, do you expect lower funding this was to happen in the future did not really impact you at all because the thesis is to actually cut costs? Or is this too far further distant future here, I guess?
Yes, you're getting pretty far out in the columns on the spreadsheet of predicting the future there a little bit, I don't know that -- I don't know that efficiency will lead to less funding. The funding ratio between funding and successful guard programs, I think it's still remaining somewhat static there. Hopefully improves in the long run, and we'll certainly take any lead that you can provide or we can help those biotechs be more efficient in their programs. But I think it's -- a couple of steps removed in terms of the linkage that you're describing.
Yes. I just meant like less dependent on the funding environment, sort of thing for future, maybe downturns or whatnot.
No, we can -- we certainly have impact in terms of a more efficient spend on the funding that takes place, more efficient spend on that. But the drug program and depending on the circumstances of that entity may or may not require even efficient spend may lead to more funding for further development.
Our next question is a follow-up question from the line of David Larsen.
I wanted to ask Will a question about his new sort of expanded role, I think, of Chief Operating Officer. Just -- Will, what are you seeing from that perspective? And maybe can you talk a little bit about the reclassification of some G&A costs up into COGS. Why did you do that? Just any color would be very helpful.
Sure. Happy to do that. I think one of the things it definitely allowed us to do as a company is like the entire organization at the way that we're running our operations -- services operations and software operations. So as we've progressed since we've done the acquisitions, we've always tried to have a one company focus, I'll call it, that drives further synergies, leverages best practices throughout the organization, and this was one more step in addition to the most recent ones were sales and marketing consolidation. Certainly, the reclass that we did this year, as I mentioned, no impact on our total costs in the way that we've reported them. But give a little bit more clarity, and we tried to incorporate that into the script on, our cost as a percentage of revenue and really looking at what's our services organization costing us, where can we improve in utilization rates or allocations of effort to development, sales and marketing, what's our sales and marketing spend as a percentage of revenue. What's our G&A spend. So really helping the company focus on areas that we can drive future profitability, get the leverage out of the business. And most importantly, I mean, we continue to have a focus on future M&A. So having this infrastructure in place that allows us to bring in new companies and keep layering on that infrastructure should hopefully allow us to see some nice synergies in the future.
Fantastic. What I just heard you say was you had a better look at the earnings per individual in each department in the organization, and that's exactly what I like to hear, quite frankly. And then just last one. Can you just talk a little bit about your sales organization? How many FTEs do you have in sales? How many are quota carrying? And then you mentioned integration of sales force, who was integrated into what? Was it Immunetrics? Or were there other integrations that happened recently? Just any sort of color there would be helpful. Sales is obviously very important.
Sure. Do you want to take that one, Shawn? Do you want to let me keep going?
You go for it.
All right. So certainly, with the Immunetrics acquisition, we do have an earn-out, so there are certain constraints within where we can fully integrate it, but we've made strides in direction to leverage our existing sales force. You've heard us talk about the cross-selling, where can we leverage customers that we have to sell services, software from the different business units continue to work up that value chain within the organization, higher decision-makers. We still got about the same amount of sales and marketing folks. So there's I want to say, about 12 salespeople quota carrying about 6 or 7 that are in marketing. And certainly a great addition just recently this last quarter with Dan Zout as our Chief Revenue Officer. Shawn,
It sounds good. The consolidation process really started a couple of years ago. And at that time, before Immunetrics was pulling resources from the divisions at the time of the previous acquisitions, and consolidating them together into one sales and marketing organization internally create some efficiencies. But more importantly, it was a focus in terms of our go-to-market presentation to our clients as one company. All of that leads to support to upsells and cross-selling across platforms and across services to our existing customers. And I think that's been accruing benefits here for a while.
There are no further questions in the queue. I'd like to hand it back to Mr. O'Connor for closing remarks.
Very good. Well, I appreciate everyone's attention today and I hope all is well on your side and look forward to speaking again soon. Take care all.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.