Simulations Plus, Inc. (SLP) Q2 2022 Earnings Name Transcript

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Simulations Plus, Inc. ( SLP 0.00% )
Q2 2022 Earnings Name
Apr 06, 2022, 5:00 p.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Individuals

Ready Remarks:

Operator

Greetings, and welcome to the Simulations Plus second quarter fiscal 2022 monetary outcomes convention name. [Operator instructions] As a reminder, this convention is being recorded. It’s now my pleasure to introduce Brian Siegel from Hayden IR. Thanks, Mr.

Siegel, you might now start.

Brian Siegel — Investor Relations

Good afternoon, everybody. Welcome to our second quarter fiscal 2022 monetary outcomes convention name. Internet hosting the decision at this time are Simulation Plus’ CEO, Shawn O’Connor; and CFO, Will Frederick. A chance to ask questions will comply with at this time’s presentation.

Earlier than starting, I want to remind everybody that aside from historic info, the issues mentioned on this presentation are forward-looking statements that contain numerous dangers and uncertainties. Phrases like imagine, anticipate and anticipate imply that these are our greatest estimates as of this writing, however that there will be no assurances that anticipated or anticipated outcomes or occasions will really happen so our precise future outcomes may differ considerably from these statements. Elements that would trigger or contribute to such variations embrace, however aren’t restricted to, our potential to take care of our aggressive benefits acceptance of recent software program and improved variations of our present software program by our prospects, the final economics of the pharmaceutical trade, our potential to finance progress, our potential to proceed to draw and retain extremely certified technical workers, our potential to establish and shut acquisitions on phrases favorable to the corporate and a sustainable market. Additional info on the corporate’s danger elements is contained within the firm’s quarterly and annual studies and filed with the U.S.

Securities and Alternate Fee. With that stated, I want to flip the decision over to Shawn O’Connor. Shawn?

Shawn O’Connor — Chief Government Officer

Thanks, Brian. Second quarter was one other profitable interval for Simulations Plus. Income progress of 13% was within the higher half of our steering vary, and we proceed to make strategic and operational progress throughout each segments of our enterprise. We’re well-positioned to attain our full-year targets.

The 13% income progress was purely natural and surpassed the 11% natural progress fee within the final yr’s second quarter. The first progress driver stays our software program enterprise, which grew 25% year-over-year organically versus natural progress of 16% final yr, excluding the contribution of Lixoft. This 9% enchancment demonstrates how highly effective the Lixoft acquisition has been for the corporate. Income from our service enterprise declined 5%, in keeping with expectations.

The entire backlog of our service enterprise elevated 50%, suggesting that service income will return to progress within the second half of fiscal 2022. Sturdy working leverage and the combination shift towards software program drove 40% diluted EPS progress to $0.21 and an adjusted EBITDA margin of 48%. Transferring to our software program highlights. GastroPlus income elevated 22% in comparison with 16% within the second quarter final yr.

We signed three new business purchasers and had eight upsells within the quarter. China, a comparatively new marketplace for us, grew 34% off a small base, validating our choice to have interaction further distribution to this progress market. I might additionally notice that GastroPlus was referenced in 18 peer-reviewed journals throughout this quarter, supporting our progress in making simulations and modeling mainstream in drug improvement. We additionally launched MembranePlus 3.0 to drive advances for in vitro, in vivo extrapolation for permeability, pores and skin penetration and launch assay techniques.

As soon as once more, MonolixSuite income continues to set the tempo for our software program section. Income elevated 43%, greater than double the 20% progress fee final yr, pushed by sturdy renewals and upsells. We signed eight new business purchasers and had 11 upsells throughout the quarter. Moreover, our efforts to broaden the addressable market geographically for MonolixSuite embrace the distribution in China and Japan beginning to repay.

MonolixSuite proves — gives customers with a quick, uncomplicated and highly effective suite of functions for pharmacometrics evaluation. In January, we launched an replace that added a brand new module and a brand new mannequin editor amongst different enhancements. The general result’s improved efficiency for information libraries and algorithms, and we’re assured in our potential to innovate and develop our technological benefits resulting in additional share positive factors. ADMET Predictor delivered 13% income progress within the quarter in comparison with 20% within the yr in the past interval.

We added seven new business prospects and had eight upsells within the quarter. We proceed to advance our AIDD collaboration. Turning to our companies highlights. PK/PD companies income declined 14% whereas the backlog elevated 18% within the quarter.

Yr-to-date income declined 6%. The comparatively excessive variety of undertaking disruptions that impacted the enterprise throughout the second half of fiscal 2021 continues to normalize. We booked eight new initiatives, 4 new prospects — from 4 new prospects and from 4 persevering with prospects, demonstrating our sturdy demand and bolstering our confidence in a normalization of companies income. Given the cadence and shifting from bookings to income, we view bookings throughout the first a part of the fiscal yr as a key main indicator of optimistic income progress within the second half of the fiscal yr.

With improved bookings and a better backlog, we’re optimistic in regards to the prospects for our PK/PD companies enterprise total. QSP/QST income declined 12% for the quarter whereas backlog elevated 78%. Yr-to-date income elevated 4%. This service section is returning to pre-COVID-19 with a superb mixture of each efficacy and toxicology enterprise and collaborations.

Final week, we introduced that we secured a Part 2 SBIR NIH grant to develop additional and validate our Biologics SEM platform. This platform is the quantitative techniques toxicology software program targeted on advanced macromolecule liver security. The grant gives roughly $1.7 million for inside software program improvement and moist lab work over two years by means of our partnership with the College of Pittsburgh Drug Discovery Institute. The institute will make the most of a next-generation organ on a chip system that compares liver toxicity in liver cells collected from wholesome donors versus these with liver illness.

This permits for the screening for indicators associated to liver security mechanisms and gives this information for biologic SEM simulations. As well as, we booked different vital QSP initiatives throughout the quarter. Gout SEM will probably be a QSP mannequin of uric acid and the propensity for therapeutic candidates to stop crystal formation in joints, which results in ache and irritation. Complement them will probably be a QSP mannequin of the complement pathway to help analysis of therapeutic targets and candidate compounds for ailments impacted by the complement pathway, which incorporates many inflammatory and nervous system issues.

Our PBPK income was flat this quarter and backlog elevated 113%. Yr-to-date income elevated 15%. We’re seeing rising demand for PBPK companies because the use circumstances for PBPK broaden and exceed trade capability resulting in extra outsourcing. In January, we introduced two new funded collaborations.

We’re partnering with a big pharmaceutical firm to switch the GastroPlus superior compartmental absorption and transit mannequin, or ACAP, in help of ongoing analysis packages for the therapy of gastrointestinal ailments. The second is with a big animal well being firm to each validate present animal PBPK fashions and so as to add vital new species to the GastroPlus platform. As a reminder, funded collaborations is strategically vital to us. First, it additional solidifies our relationship with an present buyer.

Second, it helps us scale back our R&D prices and make sure that our innovation is aligned with the shoppers’ speedy wants. Lastly, we personal the IP that comes from these collaborations and may use it with different prospects as properly. This confirmed technique is a vital device for guaranteeing GastroPlus retains its trade management. Total, our companies backlog elevated 50% throughout the quarter, additional proof that the challenges and disruptions within the second half of final yr are behind us.

Consequently, we anticipate this enterprise to return to progress within the second half of this fiscal yr. Our fiscal year-to-date efficiency offers us confidence in our steering. Our software program enterprise continues to ship accelerated progress charges which might be driving sturdy profitability. As well as, our companies enterprise is recovering and will contribute to consolidated progress within the second half of the fiscal yr.

Accordingly, we should always exit fiscal 2022 at a tempo that helps our longer-term expectations for 15% or higher natural progress with any acquisitions incremental to this quantity. With respect to M&A, we proceed to search for strategic alternatives to extend our complete addressable market and speed up our progress charges. Let me now flip the decision over to our CFO, Will Frederick, to debate the monetary outcomes.

Will Frederick — Chief Monetary Officer

Thanks, Shawn. Our complete income progress fee was 13% within the quarter. The sturdy progress of 25% in our software program enterprise positively impacted our combine, and software program was 66% of complete income this quarter. Our companies enterprise declined 5%, and it contributed 34% of complete income.

Our complete income progress fee was 14% year-to-date. Software program income progress was 23%, and companies income progress was 2%. Software program accounted for 63% of complete income, and companies contributed 37%. Our software program gross margin was 92% for the quarter, up from 89% final fiscal yr resulting from elevated income and barely decrease value of income.

Our companies margin was 59%, down from 61% final fiscal yr resulting from decrease income and a rise in lower-margin QSP/QST companies initiatives. Our complete gross margin elevated year-over-year to 81% because of the enhancing software program income combine. Our software program gross margin was 91% year-to-date, up from 88% final fiscal yr resulting from elevated income and barely decrease value of income. Our companies margin was 60%, down from 63% final fiscal yr resulting from elevated salaries and a rise in decrease margin companies initiatives, together with coaching and workshops.

Our complete gross margin elevated barely to 79% because of the enhancing software program income combine. We proceed to take pleasure in a various mixture of software program income within the quarter with stable progress throughout our whole product portfolio. For the quarter, GastroPlus was 56% of our software program income. MonolixSuite was 23%.

ADMET Predictor was 14%, and different software program was 7%. Yr-to-date, GastroPlus was 55% of our software program income. MonolixSuite was 22%. ADMET Predictor was 17%, and different software program was 6%.

For the quarter, our software program renewal fee for the business prospects was 96% primarily based on charges and 87% primarily based on accounts. As a reminder, our renewal charges fluctuate quarter-to-quarter resulting from prospects who both renew early in 1 / 4 earlier than their license time period ends or late within the following quarter. We noticed a rise in our common income per buyer this quarter in comparison with the prior yr quarter. This transformation displays our regular worth will increase and ongoing upselling efforts offset by adjustments to our low cost construction for multiyear offers.

Yr-to-date, our software program renewal fee for business prospects was 96% primarily based on charges and 90% primarily based on accounts. Renewal charges for business prospects, on common, proceed to be in keeping with historic charges within the mid-90s primarily based on charges. Common income per buyer year-to-date was the identical because the prior yr interval. And we now have 124 College+ prospects in 39 international locations.

We imagine this program, which provides free use of our software program for college students and educators, will assist put together the following technology of scientists and contribute to the speedy improvement of safer lower-cost therapies for sufferers worldwide. Shifting to our companies enterprise. Our second quarter companies income breakdown was as follows: 44% from PK/PD companies, 30% from QSP/QST companies, 19% from PBPK companies and seven% from different companies. Our year-to-date companies income breakdown was as follows: 45% from PK/PD companies, 30% from QSP/QST companies, 18% from PBPK companies and seven% from different companies.

Concerning key service metrics, Whole companies initiatives elevated 45% this quarter in comparison with the prior-year quarter, and we ended the quarter with $17 million in backlog, up $6 million from the prior yr quarter. Now turning to our consolidated earnings assertion for the quarter. Whole R&D prices for the quarter have been $1.6 million or 11% of income in comparison with $2 million or 16% of income final fiscal yr. R&D bills have been $0.9 million or 6% of income in comparison with $1.3 million or 10% of income in the identical interval final yr.

Capitalized R&D was $0.7 million or 5% of income in comparison with $7 million or 6% of income in the identical interval final yr. SG&A expense for the quarter was $5.6 million or 38% of income in comparison with $5.4 million or 42% of income final yr. The slight improve in expense was primarily resulting from will increase in promoting and advertising prices, software program license and upkeep prices and better insurance coverage prices, partially offset by decreases in compensation prices and decrease state and native taxes. Revenue from operations was $5.5 million, a rise of 57%.

And working margin expanded to 37% from 27% final yr. Revenue tax expense was $1.1 million for an efficient tax fee of 20% in comparison with earnings tax expense of $0.2 million and an efficient tax fee of 6% final yr. Final yr, we noticed a decrease efficient tax fee, primarily pushed by the tax profit related to disqualifying tendencies. Internet earnings elevated 37% to $4.4 million, in comparison with $3.2 million final yr, and diluted earnings per share elevated 40% to $0.21, in comparison with $0.15.

Adjusted EBITDA and adjusted EBITDA margin was $7.2 million or 48% in comparison with $5 million or 38% final yr. As a reminder, adjusted EBITDA is calculated by including again stock-based compensation expense and when relevant, any bills associated to M&A or different noncash nonoperating bills. We offer a reconciliation of this non-GAAP metric to internet earnings, the related GAAP metric, in our earnings launch, in addition to on our web site. For our year-to-date earnings assertion, complete R&D prices year-to-date have been $3.3 million or 12% of income, in comparison with $3.5 million or 15% of income final fiscal yr.

R&D bills have been $1.8 million or 7% of income, in comparison with $2.1 million or 9% of income in the identical interval final yr. Capitalized R&D was $1.5 million or 6% of income in comparison with $1.4 million, additionally 6% of income in the identical interval final yr. SG&A expense year-to-date was $10.6 million or 39% of income, in comparison with $9.9 million or 41% of income final yr. The expense improve was primarily resulting from will increase in promoting and advertising prices, software program license and upkeep prices and better insurance coverage prices, offset by decreases in compensation prices and decrease state and native taxes.

Revenue from operations was $9.3 million, a rise of 42%, and working margin expanded to 34% from 27% final yr. Revenue tax expense was $2 million for an efficient tax fee of 21% in comparison with earnings tax expense of $0.7 million and an efficient tax fee of 11% final yr. As talked about, final yr, we noticed a decrease efficient tax fee, primarily pushed by the tax profit related to disqualifying tendencies. Internet earnings elevated 31% to $7.4 million, in comparison with $5.7 million final yr.

And diluted earnings per share elevated 33% to $0.36, in comparison with $0.27. Adjusted EBITDA and adjusted EBITDA margin was $12.4 million or 46%, in comparison with $9.3 million or 39% final yr. This quarter, we continued to strengthen our steadiness sheet with money and short-term investments of $124.6 million and no debt. Consequently, we’re well-capitalized with enough money to help our continued growth by means of inside funding and potential M&A exercise.

I am going to now flip the decision again to you, Shawn.

Shawn O’Connor — Chief Government Officer

Thanks, Will. In conclusion, the primary half of fiscal 2022 offers us confidence that our enterprise stays on a optimistic trajectory and that we’re properly positioned to attain our full yr outlook. Total, we’re focusing on continued natural progress with a steadiness sheet that helps M&A after we fund the precise candidates. With that, I will be blissful to take your questions.

Operator?

Questions & Solutions:

Operator

[Operator instructions] And our first query comes from the road of Francois Brisebois with Oppenheimer. Please proceed together with your query.

Francois Brisebois — Oppenheimer and Firm — Analyst

Hello, thanks for taking the query. Congrats on the quarter. Simply my first query right here, this quarter-ended February, so I used to be simply questioning, I believe lots of people have been questioning in regards to the pandemic impression the final quarter you had ended November, so we — Omicron hadn’t actually hit but. So in case you may simply possibly characterize — it looks like there hasn’t been a lot, however do you suppose possibly a number of the downturn, which appears to go in the precise approach on the companies facet, may you may have something to do or simply any impression in any respect from Omicron.

Thanks.

Shawn O’Connor — Chief Government Officer

Sure, Frank, thanks for the query. The impression, if something, was not very dramatic in complete in comparison with the place we have been within the latter a part of final fiscal yr, the variety of delays and cancellations has come again to type of the traditional degree of a pair, three of these taking place each quarter that we have to reply to versus the place we have been six months out, a yr in the past at 9 within the third quarter of final yr. So comparatively talking, the impression of Omicron versus earlier variants was a lot much less. And positively, on the degree of enterprise exercise with our purchasers, the uptick by way of the bookings within the quarter that led to the numerous improve by way of the backlog that we completed the quarter with enterprise operations of our purchasers and ourselves, clearly, weren’t as impacted dramatically in any respect.

Possibly there’s nonetheless some churn by way of medical trials and a few impression by way of information circulation potential to begin initiatives, however nothing of a really dramatic nature.

Francois Brisebois — Oppenheimer and Firm — Analyst

OK. Nice. And on the software program facet, a robust quarter. The addition of the 18 new prospects, are you able to simply — I believe you have touched on it slightly bit, I believe there’s three GastroPlus 8 MonolixSuite, however is that this one thing that shocked you? Or is that this anticipated? Or the place do these prospects come from?

Shawn O’Connor — Chief Government Officer

Nicely, they arrive from a extremely stepped-up course of by way of our enterprise improvement actions, each inside and thru our distributor community. The trade is coming again to work. Workers are shifting. They’re including new scientists into their group, all of which drives new license alternative for us.

And so our actions by way of funding in enterprise improvement are persevering with to repay and dramatically as properly by way of upsell. The brand new prospects’ exercise is sweet. The upsell with our bigger portfolio of merchandise with the introduction of Lixoft is basically kicking in. 40% progress with the Monolix product is one thing that we’re very happy with.

I can not say that we essentially focused at 40%, and we’re simply seeing the advantage of that product displacing its competitor within the market and taking each new prospects, mentioning new prospects and as properly taking enterprise away from the put in base of the aggressive product. The upsell program for Monolix, the standard gross sales course of there as a buyer takes a small set of license in its first chew and will get conversant in the product and the truth that after they come again to resume, they’re nearly each time taking extra licenses to unfold them by means of and displace the aggressive product of their organizations speaks properly. And that is — that new buyer this quarter for Monolix, a yr from now will doubtless be an incredible upsell lead for us to work by way of rising the income for that shopper particularly. So sure, software program is definitely performing very properly right here throughout the board, throughout our three most vital platforms.

The opposite class is rising as properly. That different class primarily being the license of our QSP/QST fashions, which function at a decrease degree just because there aren’t that many consumers which have the in-house functionality of working these fashions. So we’re seeing contribution from that different section of our software program as properly.

Francois Brisebois — Oppenheimer and Firm — Analyst

OK. Nice. And simply possibly lastly, a small decline, however that 5% decline with the rise in backlog and all the things type of normalizing. Are you able to simply assist us perceive the place — why the 5% decline?

Shawn O’Connor — Chief Government Officer

Sure. Frank, the largest impression there may be {that a} reserving and new contract that we get usually is timed for work effort, undertaking efficiency possibly three to 6 months out, generally longer. Sure, we sometimes get a deal that could be a response — speedy response to an FDA inquiry to a shopper that we’ll signal and get began on in a short time. However most of the time, it’s for work that is going to be carried out to 3 to 6 months or extra on the market.

And so whereas we picked up bookings within the final two quarters right here, the primary two quarters of the yr, most of that work is out towards the again half of the yr. And our trough within the third and fourth quarter of final yr, the place bookings have been low, that type of interprets to now six months later or at the least the final three to 6 months the place that hole by way of new enterprise and backlog was declining that impacts income three to 6 months later, and we’re in that interval. So our 5% decline wasn’t dramatically completely different than our expectation. And we anticipate that the advantage of our uptick by way of bookings and backlog to impression us behind the yr — again half of the fiscal yr.

Francois Brisebois — Oppenheimer and Firm — Analyst

OK. Nice. Thanks.

Operator

[Operator instructions] Our subsequent query comes from the road of Matt Hewitt with Craig-Hallum Capital Group. Please proceed together with your query.

Matt Hewitt — Craig-Hallum Capital Group — Analyst

That is Lucas on for Matt Hewitt. I assume, our first query is you have acquired some authorities grants lately. Are you able to give us a way what the cadence of the income from these will seem like?

Shawn O’Connor — Chief Government Officer

Sure. A number of grants collaborations with some business purchasers as properly. The largest one, the one we simply introduced lately the grants in help of the QSP platform — ought to I say, QST platform biologics SEM $1.7 million grams, it will likely be carried out over a few two-year window of time. It isn’t completely linear.

It is as work is carried out and milestones are achieved. However kind of over the following two years, that can contribute to income. The opposite ones that is an unusually longer-term one — really regular for an NIH grant, the collaborations with business purchasers, the FDA grants or FDA collaborations that we have engaged in of current. These can extra usually be intervals of two to 3, possibly 4 quarter.

Matt Hewitt — Craig-Hallum Capital Group — Analyst

That is useful. After which geographically, are there any markets the place you had been promoting by means of a distributor, however you are now going direct?

Shawn O’Connor — Chief Government Officer

No adjustments of that nature, Lucas. We have — over the past six months or so, we have added a distributor in China in help of the MonolixSuite product line. We have added a brand new distributor in South America for GastroPlus ADMET Predictor protector. So we have added a few new distributors.

We’re within the strategy of reviewing these relationships, not that we’ve got any underperformers, however we imagine that we are able to enhance the income circulation from these geographies by supporting these distributors another way. So it is an space of focus for us, however no situation, simply a possibility. We predict that sits there that we are able to go after.

Matt Hewitt — Craig-Hallum Capital Group — Analyst

Thanks very a lot. That is all I had.

Operator

And there are not any additional questions. Right now, I might like to show the ground again over to Mr. Shawn O’Connor for closing remarks.

Shawn O’Connor — Chief Government Officer

Excellent. Nicely, I recognize everybody’s consideration on our announcement at this time. I really feel very assured by way of the place we’re in to meet our expectations, the steering and our enterprise expectations for the again half of the fiscal yr. Thanks for attending and sit up for updating you once more quickly.

Take care.

Operator

[Operator signoff]

Period: 33 minutes

Name members:

Brian Siegel — Investor Relations

Shawn O’Connor — Chief Government Officer

Will Frederick — Chief Monetary Officer

Shawn OConnor — Chief Government Officer

Francois Brisebois — Oppenheimer and Firm — Analyst

Matt Hewitt — Craig-Hallum Capital Group — Analyst

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