Simulations Plus(SLP) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue increased by 23% year over year to $22.4 million, with a 5% organic growth excluding contributions from adaptive learning and insights and medical communication business units [7][18] - Diluted EPS was 15 cents, adjusted diluted EPS was 31 cents, and adjusted EBITDA was$ 6.6 million, or 29% of revenue [7][27] - Total gross margin for the quarter was 59%, down from 72% in the prior year, primarily due to increased costs of revenues [24][27] Business Line Data and Key Metrics Changes - Software revenue grew by 16% in the second quarter, representing 60% of total revenue, while services revenue increased by 34%, accounting for 40% of total revenue [18][24] - The quantitative systems pharmacology (QSP) business unit saw revenue surge by 89%, driven by a model license for atopic dermatitis [12][19] - Clinical pharmacology and pharmacometrics (CPP) business unit revenues grew by 9%, while physiologically-based pharmacokinetics (PBPK) software revenue grew by 1% [13][22] Market Data and Key Metrics Changes - The company ended the quarter with a backlog of $20.4 million, up 18% compared to the first quarter and up 13% year over year [17][24] - Renewal rates for software customers remained strong at 90% based on fees and 84% based on accounts [20][22] Company Strategy and Development Direction - The company is focused on ramping up its Alley and MC business units, expanding cross-selling opportunities, and targeting an adjusted EBITDA margin of 35% to 40% [33][30] - The management emphasized a disciplined approach to executing effectively in challenging environments while being prepared to capitalize on any increase in customer spending [10][29] Management's Comments on Operating Environment and Future Outlook - Management noted that the operating environment remains cautious, with customers taking a cost-conscious approach to spending [7][29] - The company reaffirmed its fiscal year 2025 guidance, expecting total revenue between$ 90 million to $93 million, with year-over-year growth of 28% to 33% [31][33] Other Important Information - The increase in total operating expenses was 46% of revenue compared to 48% last year, with R&D expenses at 10% of revenue [25][26] - The company ended the quarter with$ 21.4 million in cash and short-term investments, remaining well-capitalized with no debt [28] Q&A Session Summary Question: Can you talk about the software organic revenue growth and the fee renewal rate decline? - Management indicated that software organic growth was 8% excluding proficiency software contribution, and the renewal rate declined due to one large account renewal that occurred after the quarter [38][39] Question: How do you reconcile good software growth with clients being slow to start new projects? - Management explained that while clients are cautious with service budgets, they continue to invest in software infrastructure, leading to strong software performance [42][43] Question: What are your thoughts on tariffs affecting the biopharma sector? - Management acknowledged that while tariffs could impact global pharma businesses, the drug development approval process is primarily funded through fees, which mitigates some risks [47][48] Question: Can you provide more color on the services side and cross-selling opportunities? - Management noted that proficiency and medical communications had good contributions, with a focus on expanding existing client relationships through cross-selling [55][57] Question: How should we think about the timing of deliverables for the PBPK partnership? - Management indicated that the project extends over 12 months, with a six-month engagement process prior to the agreement [90] Question: How do you see the impact of FDA disruptions on biosimulation adoption? - Management stated that while FDA disruptions are distracting, they do not believe it will significantly slow down the adoption of biosimulation [81][82]