Simulations Plus(US:SLP)2024-04-04 03:15Financial Data and Key Metrics Changes - Total revenue increased by 16% to $18.3 million, with software revenue up 11% and services revenue up 27% [24][31] - Diluted earnings per share remained at $0.20, reflecting a decrease in diluted shares outstanding due to last year's share repurchase [32] - Total gross margin decreased to 72% from 83% year-over-year, with software gross margin at 88% versus 92% and services margin at 44% versus 66% [26][31] - Adjusted EBITDA increased to $7.1 million, maintaining 39% of revenue [33] Business Line Data and Key Metrics Changes - Software segment revenue increased by 11% in Q2 and 16% for the six-month period, with strong demand except for Asia [13][24] - Cheminformatics business unit saw a 14% revenue growth in Q2 and 10% year-to-date, driven by ADMET Predictor [14] - Clinical Pharmacology & Pharmacometrics (CPP) business unit delivered 38% revenue growth for the quarter and 21% year-to-date [19] - Quantitative Systems Pharmacology (QSP) revenue decreased by 6% for the quarter but increased by 77% year-to-date [20] Market Data and Key Metrics Changes - Biotech funding has been strong, particularly for companies with drug candidates in clinical trials, indicating a healthier market compared to the previous year [8][9] - Large pharmaceutical companies are experiencing varied funding based on their individual circumstances, with some companies like Pfizer announcing significant cutbacks [45][46] - The Asian market, particularly China, is lagging in spending, impacting overall growth [13][55] Company Strategy and Development Direction - The company is focusing on enhancing its AI capabilities in drug discovery and development, leveraging its access to accurate public and private data as a competitive edge [10][12] - A reorganization of business units was implemented to improve operational performance and profitability, with all services personnel moved into cost of revenue departments [25][26] - The company is committed to capital allocation strategies, seeking opportunities for strategic acquisitions and partnerships [37] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding demand for modeling and simulation software products as market conditions improve [9][39] - The company anticipates total revenue for fiscal 2024 to be between $66 million and $69 million, with year-over-year growth of 10% to 15% [40] - Management highlighted the importance of maintaining a strong balance sheet with no debt and a seasoned management team [41] Other Important Information - Total backlog at the end of Q2 was $18 million, indicating strong demand as the company enters the second half of the fiscal year [15][28] - The average revenue per customer increased to $95,000, with a customer renewal rate of 93% based on fees [27] Q&A Session Summary Question: How is the macroenvironment affecting large pharma funding? - Management noted that large pharma funding is influenced more by individual company circumstances rather than a general funding issue [45][46] Question: How quickly does biotech funding translate into bookings? - Management indicated that there is typically a lag of six to nine months before funding translates into purchasing decisions [48] Question: What drove the strong performance in ADMET Predictor? - The increase in customers and upsells was attributed to greater market acceptance and the technology's relevance amidst new AI solutions [50] Question: Can you discuss the sequential increase in GastroPlus revenue? - Management explained that the harmonization process completed last year has led to a different seasonal pattern, contributing to revenue growth [53][55] Question: How is Monolix performing in relation to clinical trial activity? - Monolix has been growing rapidly and is indirectly correlated with clinical trial activity, as demand for modeling and simulation increases with development programs [56][59] Question: What is the impact of the new corporate development effort? - The new effort aims to identify acquisition opportunities and potentially invest in companies that utilize the company's technology in drug development [62][64] Question: How does the company differentiate itself from newer AI ventures? - Management emphasized their long-standing experience and data access as key differentiators, maintaining a strong position in the market [66][72]