8-K: Simulations Plus Reports Solid Third Quarter Results, Maintains Full-Year Revenue Guidance

Simulations Plus announced a 14% increase in total revenue for the third quarter of fiscal year 2024, reaching $18.5 million, while maintaining full-year revenue guidance.

Summary

• Simulations Plus reported a 14% increase in total revenue for the third quarter of fiscal year 2024, reaching $18.5 million.
• Software revenue grew by 12% to $11.9 million, representing 64% of total revenue, while services revenue increased by 18% to $6.6 million, making up 36% of total revenue.
• The company's gross profit remained constant at $13.3 million, with a gross margin of 71%.
• Adjusted EBITDA was $5.7 million, representing 31% of total revenue.
• Net income was $3.1 million, with diluted earnings per share (EPS) of $0.15, compared to $4.0 million and $0.20 respectively in the same quarter of the previous year.
• Adjusted diluted EPS, excluding acquisition costs, was $0.19, compared to $0.21 in the prior year.
• For the first nine months of fiscal year 2024, total revenue increased by 17% to $51.3 million.
• Software revenue for the nine months increased by 14% to $31.1 million, and services revenue increased by 21% to $20.2 million.
• The company maintains its full-year revenue guidance of $69 to $72 million and updated EPS guidance to $0.46 $0.48 and adjusted diluted EPS of $0.54 $0.56.
• The company has discontinued its quarterly cash dividend to reallocate funds to growth initiatives, with the final dividend of $0.06 per share to be paid on August 5, 2024.

Sentiment

Score: 6

Explanation: The document presents a mixed picture with solid revenue growth but a decrease in net income and EPS. The company is maintaining guidance and making strategic moves, but the discontinuation of the dividend is a negative signal for some investors.

Positives

• The company experienced strong growth in both software and services segments.
• Software revenue was driven by higher sales in Cheminformatics and Clinical Pharmacology & Pharmacometrics business units.
• Services revenue growth was driven by strong performance in Quantitative Systems Pharmacology and CPP business units.
• The company is seeing signs of recovery in biotech funding, particularly for companies with drug candidates in the clinic.
• The integration of Pro-ficiency is progressing well with positive client responses.
• The company has a healthy pipeline and is confident in achieving its fiscal year goals.
• The company is committed to a disciplined growth strategy to deliver long-term shareholder value.
• The company has a strong backlog of $19.6 million.

Negatives

• Net income decreased to $3.1 million from $4.0 million in the same quarter of the previous year.
• Diluted earnings per share (EPS) decreased to $0.15 from $0.20 in the same quarter of the previous year.
• Adjusted diluted EPS decreased to $0.19 from $0.21 in the same quarter of the previous year.
• Client sourced data delays impacted the initiation of some contracted projects in the PBPK services area.
• The company has discontinued its quarterly cash dividend.

Risks

• The company's ability to successfully integrate the Pro-ficiency business could impact future results.
• Maintaining competitive advantages is crucial for continued success.
• Acceptance of new software and improved versions by customers is important for revenue growth.
• The general economics of the pharmaceutical industry can affect the company's performance.
• The company's ability to finance growth and attract and retain qualified staff are ongoing risks.
• Market conditions and macroeconomic factors can impact the company's results.

Future Outlook

The company is confident in achieving its fiscal year goals, with a healthy pipeline and a commitment to a disciplined growth strategy. They expect the newly formed CSMC business unit to contribute approximately $3 million to fiscal 2024 revenue. The company has discontinued its quarterly cash dividend to reallocate funds to growth initiatives.

Management Comments

• Our third quarter results reflected continued solid performance in both our software and services segments, said Shawn OConnor, Chief Executive Officer of Simulations Plus.
• We continue to be cautiously optimistic about the funding environment for our biotech clients.
• The Pro-ficiency integration and collaboration is progressing in-line with our internal plan and schedule with positive responses from our clients.
• We are entering our final fiscal quarter of 2024 with a healthy pipeline and remain confident that Simulations Plus is well positioned to achieve its goals for the fiscal year.
• Going forward, we remain committed to a disciplined growth strategy that will deliver long-term returns for our shareholders.

Industry Context

The company's performance reflects a positive trend in the biosimulation market, with increased demand for both software and services. The recovery in biotech funding, particularly for companies with clinical-stage drug candidates, is a positive sign for the industry. The company's strategic acquisition of Pro-ficiency and the launch of GastroPlus X position them well to capitalize on these trends.

Comparison to Industry Standards

• Simulations Plus's revenue growth of 14% in Q3 is solid, but it's important to compare this to other biosimulation companies like Certara, which has shown varying growth rates in recent quarters.
• The gross margin of 71% is a good benchmark, but companies like Schrodinger, which focus more on high-margin software, often have higher gross margins.
• The adjusted EBITDA margin of 31% is competitive, but companies with more mature software offerings may have higher margins.
• The company's focus on both software and services is a common strategy in the industry, but the balance between these segments can vary significantly among competitors.
• The launch of GastroPlus X is a significant development, and its impact on revenue will be a key indicator of the company's competitive position against other PBPK software providers.

Stakeholder Impact

• Shareholders will be impacted by the discontinuation of the quarterly dividend, but may benefit from the reallocation of funds to growth initiatives.
• Employees may see opportunities for growth and development as the company expands.
• Customers will benefit from the company's continued investment in software and services.
• Suppliers and creditors will be impacted by the company's financial performance and growth.

Next Steps

• The company will continue to integrate the Pro-ficiency business.
• The company will focus on supporting accelerated growth in its distributor network.
• The company will continue to develop its organization to drive growth.
• The company will continue to deliver consistent revenue growth and profitability.
• The company will focus on strategic M&A and corporate development initiatives.

Key Dates

Keywords

biosimulation, software, services, revenue, EBITDA, EPS, pharmaceutical, biotech, PBPK, QSP, Cheminformatics, Clinical Pharmacology, GastroPlus, MonolixSuite, ADMET Predictor