Simulations Plus, Inc. (Nasdaq: SLP), a leading provider of simulation and modeling software for pharmaceutical discovery and development, today reported financial results for its third fiscal quarter (3QFY08) and first nine months (9Mo08) of fiscal year 2008 ended May 31, 2008.
Ms. Momoko Beran, chief financial officer of Simulations Plus, stated: “The quarterly revenues of both of our business units (pharmaceutical software/services and disability products) set new record highs during 3QFY08. Consolidated net sales increased 12.8% to $2,968,000 in 3QFY08 from $2,631,000 in the third fiscal quarter of 2007 (3QFY07), our previous record quarter. Pharmaceutical software and services revenues increased 19% to $1,975,000 in 3QFY08 from $1,659,000 in 3QFY07. Revenues from our Words+ subsidiary increased 2.2% to $994,000 in 3QFY08 from $972,000 in 3QFY07.”
Ms. Beran continued: “For 3QFY08, consolidated gross profit increased 12.7% to $2,345,000 from $2,080,000 in 3QFY07. R&D expense decreased 2.0% to $222,000 in 3QFY08 from $227,000 in 3QFY07; however, total R&D expenditures, which include capitalized software development costs, increased by 19.9%, primarily due to expansion of our Life Sciences staff and salary increases in both business units. Consolidated SG&A increased 6.4% to $942,000 in 3QFY08, compared to $885,000 in 3QFY07; however, as a percentage of sales, SG&A decreased to 31.7% in 3QFY08 from 33.6% in 3QFY07. For 3QFY08, net income before taxes increased 18.5% or $185,000 to $1,188,000 compared with $1,003,000 in 3QFY07. The provision for income taxes increased by 97.3% to $435,000 for 3QFY08 from $221,000 in 3QFY07 as a result of several factors: (1) we made more money, which decreases the relative percentage of beneficial factors such as our R&D tax credit, (2) the estimated R&D tax credit provided by our consultant a few months ago was about $90,000 higher than the actual final value after the several months of work that were required to reach the final number, and (3) recall that our provision for income taxes for 3QFY07 had been underestimated. Using our best estimates for the additional revenues and profits we expect during the fourth quarter, we anticipate a tax rate for the year of about 32%. So we used a 37% rate for this quarter in order to bring the 9-month rate up to 32%. Most of the provision of $435,000 for 3QFY08 will not be paid in cash but will have been a reduction of our deferred tax asset.
“Using the 37% income tax rate for this quarter, consolidated net earnings for 3QFY08 were $753,000, or $0.042 per diluted share, as compared to $782,000, or $0.043 per diluted split-adjusted share for 3QFY07. Our cash continues to grow, with cash at the end of 3QFY08 of $5,986,000, a 97% increase from $3,038,000 at the end of 3QFY07 and up $1,448,000, or 31.9%, from the beginning of the fiscal year.”
Ms. Beran continued: “For the first nine months, consolidated revenues increased 7.7% to $7,132,000 from $6,622,000 in 9Mo07. Revenues from pharmaceutical software and services were up 15.7% to $4,963,000 from $4,291,000 in 9Mo07. Although the third quarter was the best ever for Words+, the first two quarters were not, so revenues for our Words+ subsidiary decreased 6.9% in 9Mo08, to $2,169,000 from $2,330,000 in 9Mo07.
“In 9Mo08, consolidated gross profit increased 9.7% to $5,567,000 from $5,072,000. R&D expense in 9Mo08 increased 11.7% to $700,000 from $627,000 in 9Mo07, primarily due to expansions within our Life Sciences staff and salary increases in both business units, and SG&A increased 4.9% to $2,705,000, compared to $2,578,000; however, as a percentage of sales, SG&A decreased from 38.9% to 37.9%. Net income before taxes for 9Mo08 increased 17.5% to $2,295,000 from $1,953,000. Consolidated net earnings increased by 2.5% to $1,561,000, or $0.085 per diluted share based on 18,266,766 shares, as compared to $1,523,000, or $0.086, based on 17,787,764 split-adjusted shares in 9Mo07. Cash today half way through the fourth quarter is over $6,700,000 and we remain debt-free. The very strong cash flow we’ve experienced this fiscal year in spite of the state of the overall economy and in spite of the paper provision for income taxes is evidence of the company’s growing financial strength. We believe one of the best indicators of the company’s health is the fact that shareholders’ equity has grown at a rate of 26.4% in the first nine months to $9,690,000 from $7,665,000 at the beginning of the fiscal year.”
Walt Woltosz, chairman and chief executive officer of Simulations Plus, said: “In this third quarter, not only have both business units set new records for revenues, but our cash balance is the highest in the company’s history, and we continue to have no debt. We’re continuing to seek acquisitions and we’re making investments on new product developments and increasing our marketing and sales efforts. Again this quarter we have seen published and unpublished comparison studies for both GastroPlus™ and ADMET Predictor™ that consistently rank our software number one in predictive accuracy over all other competitors. Major upgrades to GastroPlus, ADMET Predictor, and ClassPharmer™ have all been released this quarter, extending the capabilities of these already-first-in-class programs.
Woltosz continued, “The revenue guidance for FY2008 that we provided at the end of the second quarter was to exceed last year’s gross revenues by at least $1 million. At the end of the second quarter we were only $173,000 ahead of last years first two quarters. At the end of the third quarter, we’re up $510,000 ahead of last year, with the pharmaceutical side of the business up $672,000, but the Words+ subsidiary down $161,000. We would need an additional $490,000 over last year’s fourth quarter to meet our goal. We’re working hard to make the fourth quarter as strong as we can, but we can’t project that we’ll make our goal of an increase of $1,000,000 over last fiscal year. We are continually adding new pharmaceutical business over previous-year renewals, demonstrating that there remain many more companies out there who need our technologies. We believe the business in our Words+ subsidiary is now turning around and will make positive contributions going forward. A major contributor to this is that our new Say-it! SAM PDA product released in late November is now shipping at a rate over 80% higher than the previous product did in the first 9 months of last year. As Ms. Beran pointed out above, cash has increased at a rate of 31.9% and shareholders’ equity has grown at a rate of 26.4% in just three quarters – the ultimate sign of the company’s growing financial strength.
“We’re now beginning a series of strategic planning exercises for the purpose of better positioning Simulations Plus for accelerated growth. We expect to put our cash to work by investing more heavily in the company’s infrastructure and by exploiting alliance opportunities with large pharmaceutical companies and CROs. We plan to ramp up both our proven software sales methodologies for new buyer acquisitions and our collaborative study relationships with existing clients. We expect client partnering will help fund many upcoming software product extensions. We’re expanding the Life Sciences team and considering new business areas on the pharmaceutical side that are tangential to the world-class technologies and expertise we now have. We’ve purchased some databases that provide us with new material for some opportunities that I won’t discuss in public yet. We continue to be on the hunt for acquisitions, which did not materialize this year as we had hoped. We could have made a deal or two, but they would not have been good ones. We believe patience will be rewarded and that there are opportunities out there that are synergistic with our current businesses. In the meantime, we have a growing, very strong financial position that will enable us to widen our search to somewhat larger acquisitions.”
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