Q4 2023 Simulations Plus Inc Earnings Call
Participants
Tamara Gonzalez; IR; Financial Profiles, Inc.
Shawn O'Connor; CEO; Simulations Plus, Inc.
Will Frederick; CFO; Simulations Plus, Inc.
François Brisebois; Analyst; Oppenheimer & Co. Inc.
Matt Hewitt; Analyst; Craig-Hallum
David Larsen; Analyst; BTIG
Dave Windley; Analyst; Jefferies LLC
Presentation
Operator
Greetings and welcome to the Simulations Plus fourth-quarter fiscal 2023 financial results conference call. (Operator Instructions)
As a reminder, this conference call is being recorded.
It is now my pleasure to introduce Tamara Gonzalez from Financial Profiles. Thank you, Ms. Gonzalez. You may now begin.
Tamara Gonzalez
Good afternoon, everyone, and welcome to the Simulations Plus fourth-quarter and fiscal 2023 financial results conference call. With me today are Shawn O'Connor, Chief Executive Officer; and Will Frederick, Chief Financial 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. 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 turn the call over to Shawn O'Connor. Shawn?
Shawn O'Connor
Thank you, Tamara. Good afternoon, everyone, and thank you for joining us today to discuss our fourth-quarter and fiscal 2023 results. We delivered strong revenue and earnings results for fiscal 2023. And I'd especially like to acknowledge our team's impressive execution on building strong customer relationships.
Our team's effort and dedication throughout the year while navigating a challenging environment helped to drive growth and demonstrated the strength of our customer-centric business model. Conditions in our market remain similar to what we have spoken to over the past several quarters. We continue to see a slowdown from small biotech customers who have been impacted by funding scarcity that has, in turn, affected renewal rates in this segment.
Purchasing from large pharmaceuticals also remains delayed driven by macroeconomic uncertainties and conservativeness. That said, these challenges were offset by our ability to upsell and to pass on price increases throughout the course of fiscal 2023, helping us to achieve our guidance targets for both revenue and adjusted diluted earnings per share for the fiscal year.
The underlying fundamentals of our market are resilient. As such, we believe the slow pace of investing in modeling and simulation that we have seen over the past few quarters will eventually reverse, given tremendous needs in drug development and the essential need for pharmaceutical companies to find faster, more efficacious ways to bring drugs to market.
We anticipated these challenges last year when we provided our fiscal 2023 guidance for revenues to grow 10% to 15%, and we met that guidance, delivering 11% revenue growth for fiscal 2023. Based on early anecdotal customer feedback we have been receiving, we are cautiously optimistic as we enter fiscal 2024 as we have seen a slight uptick in biotech funding and budget cycle optimism at some large pharmaceutical companies. But still, not to the levels we've seen historically.
Against this backdrop, our revenues and earnings were in line with our expectations. Fourth-quarter revenues of $15.6 million were up 33% over this time last year, driven by a 59% increase in software revenues with services up 8%. For the year, total revenues were $59.6 million, up 11%, driven by software growth of 12% and services of 8%.
Turning to profitability, gross margins and adjusted EBITDA remained solid. Fourth-quarter gross margins were 78% and for the year were 80%, reflecting a favorable mix of higher margin software sales and our ability to pass along price increases. Adjusted EBITDA was 31% of revenue for the fourth quarter and 35% of revenue for the year.
Net income in the fourth quarter was $534,000 or $0.03 per share. Adjusted net income for the quarter was $3.7 million, or $0.18 per share. For the fiscal year, net income was $10 million or $0.49 per diluted share. And adjusted net income for the fiscal year was $13.8 million, or $0.67 per diluted share. This is at the high end of our $0.63 to $0.67 fiscal 2023 guidance. I'm very proud of the results our team delivered for both the quarter and the year.
Moving on to our software segment performance. Software revenue increased 59% for the quarter and 12% year over year. Our renewal harmonization initiative to simplify and align contract renewals played out as expected and is essentially complete. And we do not anticipate future occurrences to have the same impact on quarterly revenue flow in fiscal 2024.
We now have greater visibility into our revenues. And with contract harmonization now embedded in the normal course of our business process, we expect that both Simulations Plus and our customers will see the benefits going forward. There will, however, always be accounts that become candidates for harmonization during any year as we upsell additional licenses.
Our software revenue renewal rate in the fourth quarter was negatively impacted by several non-renewals as a result of M&A activity in our client base and lower purchasing in pharma, biotech, and CRO markets. Additionally, a couple of QSP model licenses were not renewed due to and program cancellations.
GastroPlus in our PDPK business had a strong quarter. Revenues increased 76% for the fourth quarter and 11% for the year. The strong growth in the quarter was largely due to the shift in contract renewals to the fourth quarter. GastroPlus was referenced in 22 peer-reviewed journal articles and added 10 new customers. The team also booked 11 commercial client upsells.
ADMET Predictor, our AI-powered solution and cheminformatics business, saw revenues increase 46% in the quarter due to the shift in contract renewals. The team booked five upsells during the quarter and added six new customers. For the year, ADMET Predictor revenues grew 6%.
Revenues for MonolixSuite, one of the most user-friendly tools and pharmacometrics modeling, increased 18% in the quarter, thanks to five customer upsells and the addition of seven new customers in the quarter. For the year, MonolixSuite revenues grew 15%.
During the fourth quarter, our software team held a highly successful PK analytics summer school. This program educated over 450 scientists from 40 countries and served to increase community awareness of the benefits and features of this user-friendly validated tool for noncompartmental and compartmental analysis and bioequivalence evaluations. This event has supported growing attention and leads for MonolixSuite in the NCA scientific community.
Looking at our services segment, revenues grew 8%, both for the fourth quarter and for the year, representing 40% of total revenues and completed 201 projects. Services is entering the new fiscal year with a healthy backlog of $20 million, 25% higher than this time last year. The backlog increase is primarily due to the investments we've made in sales and marketing, the addition of Immunetrics, and the exemplary efforts of this team.
PKPD services revenue was down 1% in the fourth quarter and increased 10% for the year. During the quarter, PKPD saw excellent bookings that contributed to overall growth. During the fourth quarter, fixed price projects versus time and materials garnered the majority of billable hours and had some effect on revenue growth.
With the exception of this quarter, the trend for higher time and materials as a percentage of projects would appear to likely continue into fiscal 2024. This is based upon the nature of the backlog as we enter the year. The revenue benefit of timing materials as compared to fixed price projects is that these projects typically bring higher margins and have contributed to the growth of services margins to reach the mid-60s and above.
QSP/QST revenue grew 60% for the fourth quarter and 1% for the year, benefiting from our acquisition of Immunetrics in terms of revenue contribution. PDPK services revenue was down 1% in the quarter, but up 22% for the year. Although the fourth quarter was impacted by lower billable hours related to temporary staffing availability related to life events, the team saw excellent growth for the year. Our outlook for PDPK services growth remains strong and staffing hours are expected to return to normal as we start the new fiscal year.
Services had a good year. We recruited top talent, hired 14 new scientists for the year, and saw strong retention amongst our talent pool. We also added 13 in the Immunetrics acquisition.
We also had some notable highlights in the quarter. Our QSP liver study safety tool was cited in a key public document this summer. The FDA cited some results in their public medical review documents as part of identification and justification of the proper dose range for a subsequent and successful Phase 3 study and lead to approval of a widely blockbuster drug.
Our QSP team also completed some very important and large projects with large pharma partners in multiple myeloma and pulmonary fibrosis that are already leading to follow-on work in license requests with the same clients. These projects emphasize the compelling value we provide our clients when we pair our software solutions with the expertise provided by our services consultants.
We supported a client's submission of new solutions specifications, which were accepted by the EMA. And GastroPlus model was developed across multiple dose strengths of a commercial formulation and applied to support the development of a biopredictive dissolution method. With this dissolution data in hand, a safe space was established and used to justify dissolution acceptance criteria which was wider than the allowed specifications in the regulatory guidance documents.
The EMA accepted the GastroPlus modeling results. The estimated return on investment from the Regulatory Flexibility using a GastroPlus PBDM approach ranged from 12x to 45x greater than the alternatives, which included running a clinical bioequivalence trial or doing nothing and wasting 10% to produce batches to the out-of-scope specification.
We supported a first-in-human dosing recommendation for a client that resulted in an investigational new drug or IND approved. In this project, animal PK data was utilized to build PBPK models to predict systematic and gastrointestinal concentrations for a new GI disease therapy.
The validated PBPK model was then translated to humans to simulate local and systemic exposure and optimize the dosing recommendations needed to achieve target therapeutical levels in the colon and blood. The results were incorporated into the company's IND filing with the FDA and played a critical role in its regulatory acceptance to proceed with the Phase 1 trial.
As an example of the critical benefit our team of expert consultants provides, the client utilizes GastroPlus software to build and submit a model in support of a biowaiver request for a bioequivalence trial. The global agency review was harsh, and the request was rejected. After resubmission following the expert guidance from our scientific experts, the agency responded with minimal questions, which were quickly addressed, resulting in the model being accepted in the biowaiver granted.
These are just a few examples of the value-creating work our team delivers, and it's testament to the significant value of our business model. Our customer-centric culture of innovation is driving results both for our customers and for our results.
Looking ahead, we remain committed to our strategy that combines organic growth, operating leverage, and inorganic growth to create long-term value for our shareholders. This includes internal investments in product R&D, employee recruitment and retention, and enterprise technologies. From a corporate development perspective, we will continue to evaluate M&A and strategic investments that are in line with our criteria.
While we have seen some positive signs surfaced in our market, we are setting guidance based upon the status quo outlook. For fiscal 2024, we expect revenues to increase in the range of 10% to 15% or $66 million to $69 million. From a mix perspective, we expect software to contribute 55% to 60% of revenues and services to contribute 40% to 45%, reflecting the increased services revenue from Immunetrics. Further, we are guiding to diluted earnings per share in the range of $0.66 to $0.68 for an annual increase of 35% to 39%.
And with that, I'll turn the call to Will.
Will Frederick
Thank you, Shawn. We had another strong quarter with total revenue increasing 33% to $15.6 million, with software revenue up 59% and services revenue up 8%. Software revenue represented 60% of total revenue for the quarter.
For the fiscal year, total revenue increased 11% to $59.6 million, comprised of a 12% increase in software revenue and 8% increase in services revenue. Software revenue represented 61% of total revenue for the year.
Total gross margin for the quarter improved slightly to 78%, benefiting from strength in the software segment. Software gross margin increased to 89% from 86% last year, while services margin decreased to 62%, primarily due to the addition of Immunetrics.
The total gross margin for the fiscal year was flat at 80%, with software gross margin at 90% and services margin at 65%. With the addition of Immunetrics, our overall gross margin may be impacted for fiscal 2024 compared to fiscal 2023.
Now turning to software for the quarter. GastroPlus represented 54% of software revenue. MonolixSuite was 15%. ADMET Predictor was 21% and other software was 10%. For the fiscal year, GastroPlus represented 54% of software revenue, MonolixSuite was 19%, ADMET Predictor was 19%, and other software was 8%.
For the quarter, our customer renewal rate declined to 85% based on fees and to 80% based on accounts. Also for the quarter, average revenue per customer increased to $88,000 from $65,000. For the fiscal year, our customer renewal rate declined to 92% based on fees to 82% based on accounts.
Average revenue per customer for the fiscal year increased to $126,000, up from $110,000 last fiscal year. While the lower renewal rates are primarily driven by non-renewals from smaller biotech customers, one resulting benefit we are experiencing is an increase in average revenue per customer.
Shifting to our services business, the services revenue breakdown for the quarter was 39% from PKPD services, 37% from QSP/QST services, 20% from PBPK services, and 4% from other services. The services revenue breakdown for the fiscal year was 45% from PKPD services, 25% from QSP/QST services, 23% from PBPK services, and 7% from other services.
As a reminder, other services consists primarily of the regulatory services we provide customers to help them meet global regulatory compliance and quality requirements. We also provide comprehensive learning services focused on modeling and simulation training with a variety of options to help our customers succeed.
Total services projects work done during the quarter increased to 201 compared to 196 last year and year-end backlog increased to $20 million compared to $16 million last year. Anticipated revenue from backlog within 12 months remains around 70% to 80%.
Turning to our consolidated income statement for the quarter, we saw an increase in total R&D costs, primarily due to the increased investment in the development of our software products, the increased cost of Immunetrics for the quarter, and from a general increase in personnel costs. Total R&D costs in the quarter increased to $1.8 million compared to $1.7 million last year. R&D expenses were $1.1 million compared to $0.8 million and capitalized R&D was $0.7 million compared to $0.9 million.
SG&A expense for the quarter increased by 51% to $11.5 million or 73% of revenue compared to $7.6 million or 65% of revenue last year. This increase includes $1 million of M&A costs, a $1.6 million compensation expense for Immunetrics related to its acquisition, an impairment charge of $0.5 million for discontinuing the trade name, and $1.3 million increase in personnel costs related to increased headcount and higher compensation costs. Excluding these expenses, SG&A expense would have been $8.4 million or 54% of revenue for the quarter.
Income from operations resulted in a loss of $0.3 million for the quarter due to the M&A costs, Immunetrics compensation expense, and impairment charge previously mentioned. Excluding these expenses, income from operations would have been $3.4 million or 22% of revenue for the quarter.
Other income was $0.4 million this quarter versus $0.2 million last year due to returns from higher interest rates on our investment portfolio. Other income also included a $0.7 million accounting charge for the change in fair value of contingent consideration for the Immunetrics earnout. For the quarter, income tax benefit was $0.5 million compared to expense of $0.1 million last year.
Net income for the quarter decreased 44% to $0.5 million and diluted earnings per share decreased to $0.03. Adjusted EBITDA increased to $4.9 million and adjusted EBITDA margin was 31% compared to adjusted EBITDA of $2.5 million or 22% margin last year.
Adjusted diluted earnings per share for the quarter was $0.18 compared to $0.06 last year. We calculate adjusted EBITDA and adjusted diluted earnings per share 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. We provide a reconciliation of these non-GAAP metrics to net income and diluted earnings per share to relevant GAAP metrics in our earnings release and on our website.
Turning to our consolidated income statement for the fiscal year, our total R&D costs were $7.8 million or 13% of revenue, compared to $6.4 million or 12% of revenue last year. R&D expenses were $4.5 million compared to $3.2 million last year. Capitalized R&D was $3.3 million compared to $3.2 million last year. This reflects increased investment in personnel costs for the newest version of our MonolixSuite product version 2023 R1, which was released on February 28, 2023; the development of the next version of our GastroPlus product, GPX; and the development of the next version of our ADMET Predictor version 11, which includes significant enhancements to the Artificial Intelligence Drug Design or AIDD module.
For the fiscal year, SG&A expense increased by 39% to $34.7 million or 58% of revenue, compared to $25 million or 46% of revenue last year. This increase was primarily due to a $5.4 million increase in employee and labor-related expenses.
Additionally, the overall increase in SG&A expenses is due to an increase in merger and acquisition costs and the trade name write-off previously mentioned. Absent these costs, SG&A expense would have been $21.2 million for the year or 36% of revenue.
Income from operations decreased 39% to $8.7 million, while operating margin was 15% due to the M&A costs, Immunetrics compensation expense, and impairment charge previously mentioned. Excluding these expenses, income from operations would have been $12.4 million or 21% of revenue.
Interest and other income was $3 million versus $0.2 million last year due to interest income of $3.4 million, driven by the rise in interest rates this year. As previously mentioned, other income included $0.7 million expense related to the Immunetrics acquisition.
Income tax expense was $1.7 million compared to $2.6 million last year, reflecting an effective tax rate of 15% this year versus 17% last year. Our effective tax rate decreased mainly due to favorable foreign income tax rates for the fiscal year. We expect our effective tax rate for fiscal 2024 to be in the range of 20% to 22% without the tax benefit we saw in fiscal 2023.
Of note, our fiscal 2024 EPS guidance of $0.66 to $0.68 reflects the higher estimated effective tax rate. If we were to realize the same effective tax rate as fiscal 2023, our guidance would be in the range of $0.72 to $0.75.
Net income for the fiscal year decreased 20% to $10 million and diluted earnings per share decreased to $0.49. Adjusted diluted earnings per share was $0.67. The revenue impact for the fiscal year from foreign currency exchange was $0.6 million. Fiscal year adjusted EBITDA was $20.6 million and adjusted EBITDA margin was 35% compared to adjusted EBITDA of $21.5 million or 40% margin last year.
Now turning to our balance sheet. We ended the year with $115.5 million in cash and short-term investments. The change for the fiscal year was primarily driven by the addition of $21.7 million in free cash flow, plus $4.8 million in dividend payments, $20 million for our accelerated share repurchase, and $9.7 billion net cash paid for the Immunetrics acquisition. We continue to be well capitalized, have strong free cash flow, and seek opportunities for strategic acquisitions, investments, and partnerships.
I will now turn the call back to Shawn.
Shawn O'Connor
Thank you, Will. I'm pleased with the results we delivered in fiscal 2023 while navigating a challenging backdrop. I'm proud of our team's accomplishments this year. We successfully implemented our contract harmonization program, which is leading to greater visibility into revenues. We grew software double digits and saw good performance from our services business with that team finishing the year with a 25% increase in our backlog.
We completed our accelerated share repurchase program as planned as part of our overall capital allocation plan. We completed the acquisition of Immunetrics and are very pleased with how the integration is going. Immunetrics has a strong reputation in the immunology and oncology markets and has a healthy pipeline of activity, including new accounts sourced from our Simulations Plus customer base.
Importantly, we achieved the guidance we provided last year by building stronger client relationships and maintaining our scientific leadership in model-informed drug development. This achievement was made possible by our team. We made critical investments in talent and added to our scientific resources to meet customer demand, while at the same time, we maintained good retention and strong recruiting.
I'd like to thank all of our colleagues at Simulations Plus for their effort and dedication throughout the year, but I'd especially like to honor Viera Lukacova, Chief Science Officer at the PDPK business unit for being named an AAPS Fellow, richly rewarded for her leadership in the development and advancement of PDPK. We thank her for her 18 years of service at Simulations Plus. And Amparo de la Peña, VP Pharmacometric Services, who was recently elected to the International Society of Pharmacometrics or ISOP Board of Directors.
Our talented and esteemed team here at Simulations Plus create value for our clients every day to help develop safer and more effective drug solutions. The spirit of innovation and energy to do more is strong.
To conclude, the underlying fundamentals of our market are resilient with our growing revenues, delivering profitable growth and generating cash. We're well positioned to meet our goals for fiscal 2024.
Thanks for your time today. And with that, I'll turn the call over to the operator for questions.
Question and Answer Session
Operator
(Operator Instructions)
François Brisebois, Oppenheimer.
François Brisebois
Hi, thanks for the question. So just wondering in terms of the challenging environment, obviously biotech funding is going to be difficult. I was just wondering when you talk about your guidance for next year, you mentioned that it would be -- that's with the idea that it's status quo of what's going on. Maybe that 10% to 15%, can you just remind us maybe of the Immunetrics and targeted milestones or revenues that you're hoping to get there? Why it keeps the guidance in the 10% to 15% range on the revenue side for next year? Thank you.
Shawn O'Connor
Yeah. Sure, Frank. The marketplace itself, we always have very good data flow at this time of the year as our clients are in the budgetary cycle, running towards the end of the calendar year, budgets for next year being put together. They always get a good litmus test in terms of the market, two for one, in terms of those calls that we get in terms of budget to spend before the end of the year and as well quoting processes for inclusion and budgets for next year.
In both regards, they say -- we've gotten some good input, positive frequency of those conversations taking place. Certainly when you look back and compare it to last year, it's more active, more positive than it was last year. But not enough to kind of look forward and say that the market has changed.
So status quo comments in the context of our guidance, we kind of looked out to '24 and we built our guidance based upon status quo, a similar sort of market environment with biotech funding. Being where it is, it has been in the last number of quarters and cautiousness in terms of the large pharma budgets into 2024.
Immunetrics has been a great addition. And certainly in the short window of time that they've been onboard, biggest impact in terms of the pipeline, being able to take their expertise, their customer base and immunology, oncology models, bringing them on board certainly brought some backlog into the picture.
The most positive has been the embrace out of our customer base in terms of presenting the new capabilities in those therapeutic areas to them. And that's still the pipeline, disproportion of the QSP business at this point in time. So that provides good momentum going into the next year. Minimal contribution to revenue, given the timing of the acquisition here in the fourth quarter, we look for contribution next year.
Setting the guidance of 10% to 15% for next year gives us the opportunity of trying to increase our growth rate next year by 50%. And that certainly would be contributed to by Immunetrics. They've got -- and the part of the acquisition agreement was an earn-out outlook, an earn-out that would be achieved if they hit the revenue targets of $5 million, $6 million in the 2023 timeframe and $8 million in the calendar year '24 timeframe. So they could contribute significantly.
At this point in time in terms of that market, we're being cautious in terms of their contribution going forward, but they certainly provide a boost to our outlook into next year. So overall, we wanted to go into the year with guidance that was not based upon any sort of uptick in the overall market, give us some benefit from the momentum that we seem to be carrying into the next year, gives us some momentum in terms of the contribution Immunetrics will make for the business next year. And setting it in 10% to 15% with 11% performance this year, that gives us a perspective of -- yeah, we likely will do better within that range.
François Brisebois
Okay, great. Thank you. And then just maybe to remind everyone that the harmonization of the contracts and renewals. Can you just remind us what that process was and how we're coming to the end of it? And why that helps get clarity on revenues going forward? Thanks.
Shawn O'Connor
Sure. Sure. No, the harmonization process was a process that mutually our clients, and from our perspective, we saw benefits from. Taking those clients that over the years have accumulated multiple licenses within a single platform or multiple licenses across multiple platforms of our three primary software products: GastroPlus, ADMET Predictor, and MonolixSuite; and working with them to consolidate those differing license renewal dates across an entire year in some cases and identify a focal date to bring them together. So that all of the renewal activity would be more than one timeframe.
Mostly larger accounts obviously, those that have multiple licenses. And that had an impact last year, an impact of pushing renewal dates around our seasonality, which has typically been low first- and fourth-quarter revenues and high second- and third-quarter revenues. As you look back over this past year, that resorted itself into an even lower first quarter.
But then evenly dispersed on an absolute dollar basis, second through fourth quarter. And so through one year's cycle time of renewals, we've achieved that harmonization across most of our large accounts. There'll be more of those events that take place next year and other accounts may reach that threshold where can we harmonize. But it won't be the number of accounts that disrupted the seasonality in '23 and in the future, '24. So I think we've reset ourselves into a new seasonality pattern that will hold in '24 and beyond.
François Brisebois
Thank you. That's it for me.
Operator
Matt Hewitt, Craig-Hallum.
Matt Hewitt
Good afternoon and thank you for taking the questions. Maybe first up and maybe touch a little bit on the harmonization. How should we be thinking about cadence in fiscal '24? Should we anticipate maybe a little bit of a step down here in Q1, just with some of the holidays and whatnot? Maybe the services revenues are a little bit lower, but then kind of bouncing back up and more of a flattish the remainder of the year in line with your revenue guidance for the year? How should we be thinking about the cadence?
Will Frederick
Yeah. I mean, I think that's fair, Matt. The first quarter is always a lower quarter last year, and even be historically before that. And that's made more dramatic by our harmonization process last year. And so yeah, revenues in the first quarter of '24 likely be in comparison with the second, third, and fourth quarters, the lowest quarter.
Second, third, and fourth quarters should be relatively comparable level in terms of absolute dollars. On a year-over-year comparison basis, I mean, we're comparing baseline seasonality in '24 to a seasonality in '23. So on a revenue growth percentage basis, that cadence should be a little bit more consistent as we work our way through next year. So we focus on software and that is 60% of the revenue flow.
On the service side, the slowest of quarters is usually our fourth quarter impacted tremendously by holiday -- or not holiday, but the summer season, both the mechanics of our own staff taking some time off, but our clients are taking time off, which has a tendency to slow projects activities.
And that's why in the last fourth quarter, the percentage of projects were mostly fixed-price projects. Time and materials are more interactive delivery. And if the client is on vacation, he is not calling up, time and material support. First quarter is usually a little slower on the consulting side, too. That's driven the holidays. It's a piece of that.
But it's also driven by -- first quarter is conference season, our industry conferences, most significant ones take place. There's one taking place right now in Orlando. There's another in a couple of weeks, the first week of November. So service revenue is a little bit more of a bell-shaped curve, if you will, in terms of first and fourth quarter, typically being a little bit lower.
Matt Hewitt
Got it. That's super helpful. And then maybe looking at the backlog, obviously, there was a nice pop there. Some of that was contribution from Immunetrics versus sounds like the rest of that was just solid effort from your sales and marketing team. Is there any way to break out the contribution from Immunetrics into your backlog?
Shawn O'Connor
We've not broken out the Immunetrics aside. We've not broken out the backlog historically by business unit in terms of the disciplines of PKPD in QSP and PBPK.
I can say that it was Immunetrics that contributed a bit. But they were dealing with a handful of accounts and a handful of projects. So while it's an addition, it's not the most significant. The most significant contributor there was a record quarter in terms of bookings on the PKPD side. I think it was the largest in our history.
Although we didn't go back all the way through early records there, a very good quarter in terms of that discipline, number of projects that are teed up beginning in the first quarter here, but certainly in the early part, early half of the fiscal '24. And so the largest contributor to that backlog increase was out of the PKPD business.
Matt Hewitt
Got it. And then maybe last one and then I'll hop back into queue. Regarding the cross-selling opportunities, it sounds like there has been a very positive reception and it goes both ways. It sounds like both of your installed base as well as with the Immunetrics customers. But are you having some early success on the actual cross sales? Or is this more about building those relationships and kind of introducing them to the full product offering? Thank you.
Shawn O'Connor
Yes. I'd say, Matt, the biggest activity is within the QSP space in terms of the disciplines for therapeutic areas, I should say, on the Immunetrics side, providing visibility to our customers that don't overlap with theirs, the capabilities that we now have and adding names and opportunities to the pipeline to sell Immunetrics models into that client base.
In the other direction, Immunetrics comes to us with a small number of clients less than one digit in terms of total client. And many of those are large pharma that are customers of our other platform, software products, et cetera. So cross-selling into their installed base is a benefit but not a big contributor. The biggest contributor is in the direction of bringing the Immunetrics models into our much larger client base and creating opportunities to sell those models through to that community.
Matt Hewitt
Got it. Thank you.
Operator
David Larsen, BTIG.
David Larsen
Can you talk a little bit about like GastroPlus? I think you had 10 new customers which looked very good. I think that compares to like four in the previous quarter. And it was the highest quarter, I think, of the year, maybe in the past two years. And then some 11 upsells, which also looked good.
But I think your revenue actually for GastroPlus maybe declined sequentially despite the large number of new customers and upsells. Can you just talk a little bit about what drove that? And is it the renewal rates based on both fees and accounts?
Shawn O'Connor
It's a couple of things there, Dave. One, sequential quarters, keep in mind that the revenue for -- a software revenue for a given product or total software revenues from quarter to quarter because it's not a -- it's a recognition entirely upfront, 12-months license revenue taken on day one.
So it doesn't build upon itself. From third quarter to fourth quarter, you're really dealing with what's the population of renewals and back quarter driving that number. And so I think while the harmonization process left us an absolute dollar revenue level equivalency in second, third, and fourth quarter, I think there's a little high -- going to be a little higher than the fourth quarter and that contributed there as well.
However, as well in the fourth quarter, we saw a couple of non-renewals that impacted the renewal rate numbers that there that you saw were lost opportunities through M&A activity. And so that brought the fourth quarter down from where it could have been at those two acquisitions not contributed to the mix.
There were a few biotech non-renewals and a couple of CRO non-renewals. There were a couple by QSP licenses, relatively small dollar amounts, but the programs for which they were being used were discontinued. So we had a few non-renewals in the fourth quarter that contributed to those renewal rates coming down.
Our typical experience here, often those M&A events lead to ultimately one to two companies sort themselves out fully. Those discussions reinvigorate and could come back to us. So they are now in our pipeline, if you will, and some of that can come back to us down the line.
But oftentimes, the immediate reaction once the combined organizations come together in an environment right now, not renewed and then we'll look at it down the road when the dust settles. So a few impacts from non-renewals in the fourth quarter where those numbers could have been higher.
David Larsen
Thanks very much. That's very helpful. If you had to guess how much the M&A impacted revenue in the quarter, is there any sort of guess or ballpark figure? Could it have been $0.5 million, $1 million, just any sense for that?
Shawn O'Connor
And I don't know if that's the level of sort of estimations I want to get into. You could go back and you could say, geez, you know, our historical fee rate is X and it was Y in the fourth quarter. Probably come to an estimate there of that magnitude. Impactful. And like I said, would look forward to '24 playing out, and we might see some of that revenue come back to us.
David Larsen
Okay. And then in terms of price increases, just any color on what you would expect to see in fiscal '24 and what you were able to realize in fiscal '23? And then along, sort of related to that would be sort of wage inflation for your own scientists, like do you have to increase prices in order to recover more wage inflation? Or is it a more temperate environment heading into next year? Any thoughts there would be very helpful.
Shawn O'Connor
Yeah. No, good question. Top line first, in terms of price increases, as we've stated before, we were more aggressive during fiscal year '23 than we had been in the past and certainly was an environment with macroeconomic inflation, down to specific market compensation increases and the industry put the scientific community in question here, make that increase price increase at least understandable as to its starting point.
Not that it didn't come with the negotiation and pushback, but we yielded very well in that environment. And I think it speaks to the capabilities of our team that we put together in terms of our client-facing organization, as well as the partnership we have with our clients there.
They're accepting of, hey, those increases come back and are returned back to them in terms of it continuing to fund a very robust delivery out of our R&D organization with higher quality or functionality down the road. So our yield was doubled in '24 versus '23. That price increase, which was twice as much as it typically has been in the past.
As we turn to in '24, a little bit different market. Inflation is still present out there. Still, though with an environment in which our clients are pretty budget constrained. And the biggest difference is that on the other side, the expense side, there's been a settling down of the marketplace in terms of the cost of scientists in this field. And the job hopping that somewhat contributes to inflated compensation offers out there has settled down.
And so certainly that momentum goes away and our expectations in '24 return back somewhere between '22 and '23 in terms of anticipated price increases as we go forward into next year. So good yield in '23 in terms of price increase more significant than in the past. We still expect the contribution from price increase as we go into '24. but not to the level of 23.
On the expense side, I kind of said the story compensation in this community has settled down. I mean, while there is naturally some merit increase that takes place from year to year on a stagnant and salaried environment, but it's nothing compared to the year prior.
David Larsen
Okay. Thanks very much. That's very helpful.
Shawn O'Connor
Thanks, Dave.
Operator
Dave Windley, Jefferies.
Dave Windley
Good evening. Thanks for taking my question. Just a couple of quick ones. And I think bigger picture, Shawn, I'm wondering if the IRA and the changing incentives from that and the potential to restack pipeline priorities presents an opportunity for biosimulation to help in that restacking or reevaluating of opportunities? You know, our pipeline priorities, that might change because of no differential incentives on larger small molecules.
Shawn O'Connor
The world of modeling and simulation participate on both sides and actually the sort of development of the modeling applications on the large molecule or biologic side, sort of second in line in terms of most of our work was in small molecule historically.
And so it's a smaller base of activity that is growing quite rapidly, quite frankly. Just the investment in the programs, volume of programs in biologics for large molecules has increased. So I think as we move forward in the year, we continue to meet the demands of providing technology and capability and scientific support on the biologic side and are doing so. And I see that as a disproportionate contributor to our growth going forward.
Dave Windley
Got it. Thank you for that. And then in your prepared remarks, you talked about I think it was a PBPK client example at the IND stage. And I know that -- I've seen parts of your company present or market at Society of Toxicology. So I know you have a role to play in that earlier stage.
And I'm wondering if the difficulties for biotechs, particularly large molecule, to get access to nonhuman primates in that safety assessment stage, if that has percolated to opportunities for your business and simulation to try to get around that bottleneck in the supply chain.
Shawn O'Connor
Yeah. Certainly it's a capability -- an issue that we can address our ability in the preset models in terms of species within GastroPlus, for example, provide tremendous impact in terms of situations where animal studies are looking to be reduced in terms of population size and the ability to turn around and predict smaller populations into human. And so yes, no, it's certainly something that -- having a positive impact in terms of our communications with clients and pipeline opportunities.
Dave Windley
Super. Thank you again for taking my questions. Have a great night.
Shawn O'Connor
Yeah. You too, thanks.
Operator
At this time, there are no further questions. I would like to hand the floor back over to Mr. Shawn O'Connor for any closing comments.
Shawn O'Connor
Well, thanks, everyone, for your attention. Good year. On our part, we're very cautiously optimistic, I guess, is the best word as we enter 2024 with some good momentum coming out of this past year. And a great team on board that performed very well this past year and look forward to their continued contributions in the next year. Thanks for your attention and look forward to talking to you again soon. Take care.
Operator
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
