雅虎香港財經 Simulations Plus, Inc. (NASDAQ:SLP) Q2 2024 Earnings Call Transcript
Simulations Plus, Inc. (NASDAQ:SLP) Q2 2024 Earnings Call Transcript April 3, 2024
Simulations Plus, Inc. beats earnings expectations. Reported EPS is $0.1983, expectations were $0.18. Simulations Plus, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings. And welcome to the Simulations Plus Second Quarter Fiscal 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference call is being recorded. It is now my pleasure to introduce Lisa Fortuna from Financial Profiles. Ms. Fortuna, you may now begin.
Lisa Fortuna: 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 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?
Shawn O'Connor: Thank you, Lisa. 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 reported 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 of 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 longstanding 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 six-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 Cheminformatics 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 eight 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 six new customers and booked nine 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 the 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 six-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 RFPs, 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. So we are managing through this volatility quite well to maintain a steady flow of projects, 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.
Will Frederick : 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 costs or 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 90%. 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 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 calculated 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 from 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.
Shawn O'Connor : 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're 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, 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.
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