Simulations Plus(US:SLP)2024-04-05 12:44PART I. FINANCIAL INFORMATION Condensed Consolidated Financial Statements Presents unaudited condensed consolidated financial statements, highlighting 18% revenue growth for the six-month period despite gross margin compression Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Feb 29, 2024 | Aug 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $37,031 | $57,523 | | Short-term investments | $71,473 | $57,940 | | Total current assets | $127,957 | $130,372 | | Goodwill | $19,099 | $19,099 | | Total assets | $193,973 | $186,101 | | Liabilities & Equity | | | | Total current liabilities | $14,528 | $11,987 | | Total liabilities | $16,935 | $16,072 | | Total shareholders' equity | $177,038 | $170,029 | | Total liabilities and shareholders' equity | $193,973 | $186,101 | Condensed Consolidated Statements of Operations Highlights (in thousands, except EPS) | Metric | Three Months Ended Feb 29, 2024 | Three Months Ended Feb 28, 2023 | Six Months Ended Feb 29, 2024 | Six Months Ended Feb 28, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $18,305 | $15,750 | $32,805 | $27,714 | | Gross profit | $13,221 | $13,130 | $23,069 | $22,423 | | Income from operations | $4,442 | $4,034 | $5,402 | $4,912 | | Net income | $4,029 | $4,174 | $5,974 | $5,419 | | Diluted EPS | $0.20 | $0.20 | $0.29 | $0.26 | Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended, in thousands) | Cash Flow Activity | Feb 29, 2024 | Feb 28, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,972 | $10,248 | | Net cash used in investing activities | ($24,380) | ($1,073) | | Net cash used in financing activities | ($2,084) | ($21,450) | | Net decrease in cash and cash equivalents | ($20,492) | ($12,275) | - As of February 29, 2024, the company had remaining performance obligations of $10.8 million, with 94% expected to be recognized as revenue over the next 12 months31 - A subsequent event in March 2024 involved a $2.5 million cash earnout payment to former equity holders of Immunetrics137 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 18% revenue growth for the six-month period, highlighting gross margin compression and strong liquidity Results of Operations Detailed operational comparison shows 18% six-month revenue growth, but gross margin declined due to surging costs Three-Month Operational Comparison (in thousands) | Metric | Q2 FY2024 | Q2 FY2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $18,305 | $15,750 | $2,555 | 16% | | Gross Profit | $13,221 | $13,130 | $91 | 1% | | Gross Margin | 72% | 83% | - | - | | Income from Operations | $4,442 | $4,034 | $408 | 10% | | Net Income | $4,029 | $4,174 | ($145) | (3)% | Six-Month Operational Comparison (in thousands) | Metric | H1 FY2024 | H1 FY2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $32,805 | $27,714 | $5,091 | 18% | | Gross Profit | $23,069 | $22,423 | $646 | 3% | | Gross Margin | 70% | 81% | - | - | | Income from Operations | $5,402 | $4,912 | $490 | 10% | | Net Income | $5,974 | $5,419 | $555 | 10% | - The increase in cost of revenues for the six-month period was primarily driven by a $1.9 million impact from internal reorganization, $1.1 million from the Immunetrics acquisition, and $1.3 million in compensation-related increases159 - Six-month software revenue grew 16% ($2.6 million) due to higher sales from GastroPlus®, Monolix™, QSP, and ADMET Predictor® Services revenue grew 22% ($2.4 million), with the Immunetrics acquisition contributing $1.1 million to this increase157 Liquidity and Capital Resources Maintains strong liquidity with significant cash and investments, and $30 million remaining in its share repurchase program - As of February 29, 2024, the Company had $37.0 million in cash and cash equivalents, $71.5 million in short-term investments, and working capital of $113.4 million168 - The company has a share repurchase program with $30 million remaining available for future repurchases after completing a $20 million accelerated share repurchase (ASR) agreement in May 2023170 - In March 2024, the Company made a $2.5 million cash earnout payment related to the Immunetrics acquisition A potential catch-up opportunity exists for the second earnout payment, which could increase from a target of $4.0 million to $5.5 million171 Critical Accounting Estimates Management identifies critical accounting estimates for revenue recognition, software development, intangible assets, and stock compensation - Key areas requiring management's judgment include revenue recognition, capitalized software development costs, valuation of intangible assets and goodwill, business acquisitions, and stock-based compensation189196205 - Capitalization of software development costs requires judgment on technological feasibility, future revenue, and economic life For the six months ended Feb 29, 2024, the company capitalized $1.8 million in software development costs193 Quantitative and Qualitative Disclosures about Market Risk No material change in the company's market risk exposure from its prior Annual Report on Form 10-K - As of February 29, 2024, there has been no material change in the company's exposure to market risk from that described in its most recent Annual Report206 Controls and Procedures Management concluded disclosure controls and procedures were effective with no material changes in internal controls - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of February 29, 2024207 - No changes in internal controls over financial reporting occurred during the most recent fiscal quarter that materially affected, or are likely to materially affect, the company's internal control over financial reporting208 PART II. OTHER INFORMATION Legal Proceedings The company is not a party to any material legal proceedings and is unaware of any pending or threatened actions - The company is not a party to any legal proceedings and is not aware of any pending or threatened legal proceedings of any kind103210 Risk Factors No material updates or changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - There have been no material updates or changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2023211 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales or share repurchases occurred, with $30 million remaining in the authorized repurchase program - No shares were repurchased during the three and six months ended February 29, 2024216 - After completing a $20 million accelerated share repurchase (ASR), $30 million remains available for additional repurchases under the company's authorized program215 Defaults Upon Senior Securities No defaults upon senior securities were reported - None217 Mine Safety Disclosures Mine safety disclosures are not applicable to the company's operations - Not applicable218 Other Information Discloses termination and adoption of Rule 10b5-1 trading plans for directors and officers during the quarter - Discloses the termination and adoption of Rule 10b5-1 trading plans for directors Dr Lisa LaVange and Dr Daniel Wiener, and the termination of a plan for Business Unit President John DiBella219 Exhibits Lists all exhibits filed with the Form 10-Q report, including CEO/CFO certifications and Inline XBRL documents - Lists filed exhibits, including CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1) and Inline XBRL data files (Exhibit 101)221