Simulations Plus Reports Second Quarter and Six Months FY2008 Financial Results

Division: Simulations Plus

Simulations Plus, Inc. (Nasdaq: SLP – News), a leading provider of simulation and modeling software for pharmaceutical discovery and development, today reported financial results for its second fiscal quarter (2QFY08) and first six months of fiscal year 2008 ended February 29, 2008.

Ms. Momoko Beran, chief financial officer of Simulations Plus, stated: “Consolidated revenues for 2QFY08 were $2,180,000, a decrease of 14.0% from $2,534,000 in the second quarter of fiscal year 2007 (2QFY07). Second quarter revenues from pharmaceutical software and services decreased 14.3% and second quarter revenues for our Words+ subsidiary decreased 13.2% from 2QFY07. As we pointed out in earlier announcements, a large pharmaceutical software reorder that was received in the second quarter last year came in during the first quarter this year. While we are very pleased to have received this significant reorder from an important client, its earlier posting this year skewed our individual 1QFY08 and 2QFY08 sales results. The appearance is that our first quarter was significantly better and our second quarter significantly worse than the prior year when, in actuality, pharmaceutical sales are up a healthy 13.5% in the first six months of fiscal 2008.”

Ms. Beran continued: “For 2QFY08, consolidated gross profit decreased 12.8% to $1,724,000 from $1,977,000 in 2QFY07. R&D expense increased 16.4% to $252,000 in 2QFY08 from $216,000 in 2QFY07, primarily due to expansion of our Life Sciences staff and other salary increases. Consolidated SG&A decreased 11.1% to $832,000 in 2QFY08, compared to $936,000 in 2QFY07; however, as a percentage of sales, SG&A increased slightly from 36.9% to 38.2%. The major decreases in SG&A expenses were travel, accrued bonus to the Company’s CEO, bad debts, and professional fees, which were outweighed by increases in commissions, investor relations, year-end bonuses which are always paid during the second fiscal quarter, salaries, hiring expenses, and payroll-related expenses such as health insurance, 401K, and payroll taxes.

“For 2QFY08, net income before taxes decreased 18% or $154,000 to $702,000 compared with $856,000 in 2QFY07. The provision for income taxes decreased by 27.3% to $137,000 for 2QFY08 from $188,000 in 2QFY07. Consolidated net earnings for 2QFY08 were $565,000, or $0.03 per diluted share, as compared to $668,000, or $0.04 per diluted share for 2QFY07, after allowing for a 1.4% increase in the number of fully diluted shares. Cash at the end of 2QFY08 was $5,507,000, up 71.1% from $3,219,000 at the end of 2QFY07. We believe shareholders’ equity is one of the best indicators of a company’s growth. Shareholders’ equity at the end of 2QFY08 increased 34.7% to $8,900,000 from $6,607,000 at the end of 2QFY07, and up 16.1% from $7,665,000 at the beginning of the fiscal year.”

Ms. Beran continued: “For the first six months of FY2008, consolidated revenues increased 4.3% to $4,163,000 from $3,990,000 in the first six months of FY2007. Revenues from pharmaceutical software and services were up 13.5% to $2,988,000 from $2,632,000 in the first six months of FY2007. Revenues for our Words+ subsidiary decreased 13.4% in the first six months, to $1,175,000 from $1,358,000. In the first six months, consolidated gross profit increased 7.7% to $3,222,000 from $2,992,000; R&D expense increased 19.4% to $478,000 from $400,000, primarily due to expansions within our Life Sciences staff, and SG&A increased 4.1% to $1,763,000, compared to $1,693,000; however, as a percentage of sales, SG&A decreased slightly from 42.4% to 42.3%. Major expense increases were for the same reasons described above for the second quarter.

“Net income before taxes for the first six months of FY2008 increased 17% to $1,107,000 from $950,000. Consolidated net earnings increased by 9.0% to $808,000, or $0.04 per diluted share based on 18,369,400 shares, as compared to $741,000, or $0.04, based on 17,625,312 split-adjusted shares in the first six months of FY2007.”

Walt Woltosz, chairman and chief executive officer of Simulations Plus, said: “In spite of a few difficulties, Simulations Plus has continued to grow during the first six months of this fiscal year. The acquisitions we’ve been working on for so long have not materialized. Last week we discontinued negotiations on one for the pharmaceutical side of the business after almost a year of negotiations. As we’ve stated a number of times, we’re only interested in accretive deals – those that immediately add to revenues and earnings. In this case, we were unable to find a win-win deal structure within the constraints of the tax laws in the U.S. and the seller’s European country. Our Phase II SBIR proposal was returned unscored after receiving one favorable review and one unfavorable review. The latter appears to be the result of a failure of that particular reviewer to appreciate the obvious value of being able to calculate partial charges at the rate of millions of molecules per day instead of one per day. This was a surprise because our Phase I proposal based on the same arguments was rated as “an exemplary proposal that should be an example for others” by one of the reviewers last year. In the meantime, we have continued the work we had begun under the SBIR and we’ve achieved excellent results that will be incorporated into the next major release of ADMET Predictor™, currently scheduled for July. We will resubmit this proposal at the August deadline with results that will further show the value of our new technology.”

Woltosz continued: “Our cash balance is the highest in the company’s history, so we are continuing to seek acquisitions that complement both of our businesses and we are making investments on new product development and increasing marketing and sales efforts. We remain debt-free and profitable. Our pharmaceutical software and services are recognized worldwide as best-in-class. We remain very optimistic that the pharmaceutical industry is in a stage of adopting simulation and modeling tools at all levels. Recent communications with various customers reinforce this, as well as our experience in receiving orders for additional licenses from a number of our large customers. There is simply no other technology with the payback offered by good simulation and modeling tools.

“As a result of our first six months, we are revising our guidance for FY2008. We now project that consolidated revenues for the fiscal year will be at least $1 million higher than FY2007 without acquisitions, with a growth rate of approximately 20% in pharmaceutical software and services revenues combined with a slight decline in revenues for our Words+ subsidiary. We continue to work hard at identifying and acquiring new products or businesses for both the pharmaceutical and Words+ sides of the business. Although there can be no assurances that any acquisitions will be completed prior to the end of the fiscal year, at such time as any are completed, we will update our guidance at that time.”

Woltosz added: “One final comment. We would not normally comment on such matters, but at this point I think it is important for investors to have this information. In the trading window that is open for senior managers in the next several weeks, you will probably see a few shares being sold by some of them. These transactions are reported on Form 4s. I don’t expect the total number of shares to be a significant percentage of the public float. No one wants to sell right now; however, the alternative minimum tax has caused some to have to pay taxes on income they have not received. I personally believe that this absurd tax is a travesty. With any other investment, you pay tax on your profit when you sell, but the AMT forces people to pay taxes when an option is exercised and you’re buying. Investors should recognize that such sales are not for any other reason than necessity.”

For complete balance sheets, click here.