Simulations Plus(US:SLP)2024-07-02 23:28Financial Data and Key Metrics Changes - Total revenue increased by 14% to $18.5 million in Q3 2024, with Software revenue up 12% and Services revenue up 18% [30][4] - Diluted earnings per share were $0.15 compared to $0.20 last year, while adjusted diluted earnings per share were $0.19 compared to $0.21 last year [33][14] - Total gross margin was 71%, down from 82% last year, with Software gross margin at 88% versus 91% and Services gross margin at 41% versus 63% [11][12] Business Line Data and Key Metrics Changes - Software segment revenues increased by 12% in Q3 and 14% for the nine-month period, driven by renewals and upsells [5] - Physiologically Based Pharmacokinetics (PBPK) business unit saw a 7% revenue increase in Q3 and 9% year-to-date, adding 14 new customers [6] - Quantitative Systems Pharmacology (QSP) business unit revenues surged by 80% in Q3 and 78% year-to-date, although quarterly results can be variable due to high license costs [7] - Services revenues in the Clinical Pharmacology & Pharmacometrics (CPP) business unit grew by 27% in Q3 and 16% year-to-date, while QSP services revenue grew by 49% in Q3 and 74% year-to-date [8] Market Data and Key Metrics Changes - The market funding environment for biotech is improving, with signs of recovery particularly for companies with drug candidates in clinical trials [25] - Customer renewal rates for the trailing 12 months were 92% based on fees and 84% based on accounts [12] Company Strategy and Development Direction - The company aims to achieve full-year revenue guidance of $69 million to $72 million, with year-over-year growth expected between 15% to 20% [17] - The acquisition of Pro-ficiency is expected to enhance the company's offerings and expand its total addressable market to $8 billion [36][29] - The company is focused on investing in growth initiatives rather than continuing its quarterly cash dividend [15] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding large pharmaceutical client spending, noting a mix of increased and conservative expenditures [25] - The company anticipates that the integration of Pro-ficiency will progress according to plan and is expected to contribute positively to fiscal year 2025 earnings [61][29] Other Important Information - Total operating expenses were 61% of revenue compared to 57% last year, primarily due to acquisition costs and increased compensation expenses [13] - The company ended the quarter with $119 million in cash and investments, remaining well-capitalized with no debt [34] Q&A Session Summary Question: What is the outlook for organic revenue growth in 2025? - Management indicated that the biosimulation market is growing at 12% to 15%, and they expect potential improvements in fiscal year 2025 [64] Question: Can you provide updates on Pro-ficiency's contribution? - The expected contribution from Pro-ficiency in fiscal year 2025 remains at $15 million to $18 million, with potential for better performance [65] Question: What factors impacted the adjusted EBITDA margin this quarter? - The adjusted EBITDA margin was impacted by costs associated with a significant software release and increased hiring expenses [66]