Simulations Plus(SLP) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements show a 2% revenue increase to $27.7 million but a 27% net income decrease to $5.4 million for the six-month period, influenced by increased expenses and share repurchases Condensed Consolidated Balance Sheets The balance sheet shows total assets decreased to $173.2 million and shareholders' equity declined to $164.6 million, primarily due to cash reduction and share repurchases Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Feb 28, 2023 (Unaudited) | Aug 31, 2022 (Audited) | | :--- | :--- | :--- | | Total Current Assets | $131,474 | $146,790 | | Cash and cash equivalents | $39,292 | $51,567 | | Total Assets | $173,201 | $188,382 | | Total Current Liabilities | $6,002 | $7,735 | | Total Liabilities | $8,608 | $10,134 | | Total Shareholders' Equity | $164,593 | $178,248 | Condensed Consolidated Statements of Operations and Comprehensive Income Revenues increased to $15.8 million (3 months) and $27.7 million (6 months), but net income decreased to $4.2 million and $5.4 million respectively due to higher expenses Statement of Operations - Three Months Ended Feb 28 (in thousands, except EPS) | Metric | 2023 | 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $15,750 | $14,796 | +$954 | +6.4% | | Gross Profit | $13,130 | $11,966 | +$1,164 | +9.7% | | Income from Operations | $4,034 | $5,480 | -$1,446 | -26.4% | | Net Income | $4,174 | $4,409 | -$235 | -5.3% | | Diluted EPS | $0.20 | $0.21 | -$0.01 | -4.8% | Statement of Operations - Six Months Ended Feb 28 (in thousands, except EPS) | Metric | 2023 | 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $27,714 | $27,213 | +$501 | +1.8% | | Gross Profit | $22,423 | $21,627 | +$796 | +3.7% | | Income from Operations | $4,912 | $9,271 | -$4,359 | -47.0% | | Net Income | $5,419 | $7,435 | -$2,016 | -27.1% | | Diluted EPS | $0.26 | $0.36 | -$0.10 | -27.8% | Condensed Consolidated Statements of Shareholders' Equity Shareholders' equity decreased to $164.6 million due to a $20 million share repurchase and $2.4 million in dividends, offsetting $5.4 million in net income - A $20 million repurchase and retirement of common shares significantly impacted shareholders' equity, allocated as a $4 million reduction from common stock and $16 million from retained earnings[13] - The company paid cash dividends of $0.12 per common share, totaling $2.413 million, consistent with the prior year[13] Condensed Consolidated Statements of Cash Flows Operating cash flow increased to $10.2 million, but financing activities used $21.5 million due to a $20 million share repurchase, resulting in a $12.3 million net cash decrease Cash Flow Summary - Six Months Ended Feb 28 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $10,248 | $6,179 | | Net cash (used in) provided by investing activities | ($1,073) | $19,089 | | Net cash used in financing activities | ($21,450) | ($1,879) | | Net (decrease) increase in cash | ($12,275) | $23,389 | | Cash and cash equivalents, end of period | $39,292 | $60,373 | - The primary driver for cash used in financing activities was the $20.0 million repurchase and retirement of common shares, which did not occur in the prior year[15] Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue streams, and segment performance, highlighting 69% of revenue from Americas and a $20 million accelerated share repurchase Segment Performance - Six Months Ended Feb 28, 2023 (in thousands) | Segment | Revenues | Gross Profit | Gross Margin | | :--- | :--- | :--- | :--- | | Software | $16,561 | $14,833 | 90% | | Services | $11,153 | $7,590 | 68% | | Total | $27,714 | $22,423 | 81% | Geographical Revenue - Six Months Ended Feb 28 (in thousands) | Region | 2023 Revenue | % of Total | 2022 Revenue | % of Total | | :--- | :--- | :--- | :--- | :--- | | Americas | $19,089 | 69% | $18,155 | 67% | | EMEA | $5,748 | 21% | $6,731 | 25% | | Asia Pacific | $2,877 | 10% | $2,327 | 8% | - On January 11, 2023, the company initiated a $20 million accelerated share repurchase (ASR) agreement, receiving an initial 408,685 shares[93][94] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, noting a 2% revenue increase offset by a 42% rise in SG&A expenses, leading to a 47% drop in operating income, while maintaining strong liquidity Results of Operations Revenues increased 2% to $27.7 million, but operating income fell 47% to $4.9 million due to a 42% rise in SG&A and 39% in R&D expenses Comparison of Six Months Ended February 28, 2023 and 2022 (in thousands) | Metric | 2023 | 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $27,714 | $27,213 | $501 | 2% | | Gross profit | $22,423 | $21,627 | $796 | 4% | | Total operating expenses | $17,511 | $12,356 | $5,155 | 42% | | Income from operations | $4,912 | $9,271 | ($4,359) | (47)% | | Net income | $5,419 | $7,435 | ($2,016) | (27)% | - SG&A expenses increased by $4.5 million (42%), primarily from a $3.2 million rise in employee costs due to a 14% headcount increase and market compensation adjustments[132] - R&D costs increased by $0.7 million (39%), driven by MonolixSuite 2023R1 development and higher personnel costs from market compensation adjustments[131] Results of Operations by Business Unit Services revenue grew 11% to $11.2 million, while Software revenue declined 3% to $16.6 million, impacting overall gross profit Segment Gross Profit - Six Months Ended Feb 28 (in thousands) | Segment | 2023 | 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Software | $14,833 | $15,605 | ($772) | (5)% | | Services | $7,590 | $6,022 | $1,568 | 26% | | Total | $22,423 | $21,627 | $796 | 4% | - Services business revenue grew by $1.1 million (11%) year-over-year, driven by higher PKPD and PBPK services revenues[145] - Software business revenue decreased by $0.6 million (3%) year-over-year, primarily due to lower revenues from ADMET Predictor® and MonolixSuite[144] Liquidity and Capital Resources The company maintains strong liquidity with $39.3 million cash and $76.1 million investments, having executed a $20 million ASR as part of a $50 million share repurchase program - The company holds $39.3 million in cash and cash equivalents and $76.1 million in short-term investments[146] - On January 11, 2023, the company initiated a $20 million Accelerated Share Repurchase (ASR) agreement, part of a $50 million share repurchase program[147][148] - Net cash from operations was $10.2 million, while financing activities used $21.5 million, primarily due to the $20.0 million share repurchase[154][158] Known Trends or Uncertainties Key trends include economic uncertainty and banking system instability, offset by the positive trend of increasing adoption of simulation tools in pharmaceutical R&D - The company acknowledges risks from the broader economic environment, including inflation, rising interest rates, and increased recession risk[163] - Recent failures of Silicon Valley Bank and Signature Bank raise concerns about U.S. banking system stability, potentially affecting cash access, though the company does not bank with regional banks[164] - A positive trend is the increasing adoption of simulation and modeling tools to improve R&D productivity in the pharmaceutical industry, expected to benefit the company[162] Quantitative and Qualitative Disclosures about Market Risk The company reports no material changes in its market risk exposure as of February 28, 2023, compared to its prior annual report - As of February 28, 2023, there has been no material change in the company's exposure to market risk from that described in its most recent Annual Report[169] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective with no material changes to internal controls - Management, including the CEO and CFO, concluded that as of February 28, 2023, the company's disclosure controls and procedures were effective[170] - There were no changes in internal controls over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[171] PART II. OTHER INFORMATION Legal Proceedings The company is not currently a party to any 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[82][173] Risk Factors Updated risk factors include potential stock price volatility from share repurchases and adverse impacts from financial services industry instability - A new risk factor notes that the company's $50 million share repurchase program cannot be guaranteed to enhance shareholder value and that repurchases could increase the volatility of the common stock price[175] - The company highlights risks from instability in the financial services industry, citing the March 2023 failures of Silicon Valley Bank and Signature Bank as events that could lead to market-wide liquidity problems and adversely affect business operations[176] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales occurred, and the company executed a $20 million Accelerated Share Repurchase as part of its $50 million program - There were no unregistered sales of the company's securities during the quarter ended February 28, 2023[177] - On January 11, 2023, the company entered into a $20 million Accelerated Share Repurchase (ASR) agreement and received an initial delivery of 408,685 shares. After the ASR is settled, $30 million will remain under the repurchase authorization[178][180][181] Defaults upon Senior Securities The company reported no defaults upon senior securities during the period - None[181] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[182] Other Information The company did not report any other information for this item - None[183] Exhibits This section lists all exhibits filed with the Form 10-Q, including ASR confirmation, plan amendments, and officer certifications - Key exhibits filed include: * Confirmation for Fixed Dollar Accelerated Share Repurchase Transaction (10.1) * First Amendment to 2021 Equity Incentive Plan (10.2) * Fourth Amendment to Lease (10.3) * Certifications of the Principal Executive Officer and Principal Financial Officer (31.1, 31.2, 32.1) * Inline XBRL documents (101 series)[184]