SLP - Earnings call transcript Q2 2022

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Operator

Greetings, and welcome to the Simulations Plus Second Quarter Fiscal 2022 Financial Results Conference Call. At this time, all participants are listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Brian Siegel, from Hayden IR. Mr. you, Thank now may Siegel, begin. you

Brian Siegel

and Good afternoon, will XXXX Simulation follow second An O'Connor; fiscal today's presentation. to results Welcome Plus' to conference questions Shawn are our financial today call. quarter call Frederick. everyone. Hosting ask Will CFO, CEO, opportunity the

that filed a the company, the and quarterly Exchange I and US improved O'Connor. close over Shawn? risk finance contained like there mean the Before acceptance annual beginning, and involve Securities to to that anticipate our everyone highly of staff, favorable best expect the to a expected ability of would the risks of to our like our and new not Words our company's contribute differences software to that information, like historical and include, events and actual statements call ability factors or With to, to pharmaceutical no competitive industry, attract that terms for and I economics that our from versions with information are of the these continue can so discussed could to is technical will Commission. matters reports such on said, general forward-looking would uncertainties. estimates advantages, customers, identify sustainable believe, retain our results writing, the this to existing market. our in Factors of be remind or are acquisitions except significantly ability that this differ by Shawn growth, assurances on presentation or number anticipated Further limited company's as but to cause in are turn qualified future place, but maintain those that software our and actually to the our ability and take statements. results could

Shawn O'Connor

Brian. you, Thank

and we successful progress segments XX% upper and strategic of continued of range, operational another our was Simulations to Plus. across quarter half Second business. our period the in guidance make was for both Revenue growth of

achieve declined return that growth year backlog half diluted XX%. service to $X.XX has The been EBITDA the in positioned primary organic improvement shift leverage organically XX% drove business, last year, to organic X%, from the will well second and XXXX. mix expectations. revenue powerful for demonstrates growth growth our of excluding the EPS our This our are our and The versus business XX% Strong year's Lixoft. remains organic goals. grew acquisition driver last towards service Lixoft software software in purely line of The revenue growth full X% margin the quarter. company. and the suggesting We an year-over-year growth of how which growth adjusted surpassed XX% the operating XX%, contribution rate XX% increased total Revenue the was of with fiscal second service in to business of XX%

China, a XX% our our to We quarter. market our to us, validating drug during distribution in development. market. additional mainstream GastroPlus and in XX referenced that, modeling decision base, small a quarter, also peer-reviewed I'd to to note this this growth was supporting simulations in engage journals making second progress clients X software relatively XX% increased year. the revenue new new quarter last and highlights. up-sells in grew had commercial XX% compared signed off Moving in three GastroPlus the for

pace We for systems. the had skin new permeability, extrapolation up-sells commercial vitro, assay in also advances double clients release XX XX%, our growth increased Revenue revenue signed during segment. penetration quarter. driven continues year, last more to the and for for rate set up-sells. We software vivo, XX% by MembranePlus renewals and in than strong the X.X eight again, and MonolixSuite drive released Once to

in and China fast, module a improved and starting analysis. performance for a libraries up-sells among is uncomplicated XX% we in enhancements. of distribution addressable leading the ago expand for new January, proves to provides compared Additionally, confident other with growth off. In period. to MonolixSuite our and pay seven the gains. grow innovate our commercial ability suite algorithms, efforts and are to released applications added the added our result to include delivered technological XX% overall data, We powerful – year model we revenue a new the in that quarter. The had geographically and in advantages eight editor Japan further and the new update share to market pharmacometrics customers MonolixSuite, and quarter Predictor users for in ADMET an

We continued to advance our AIDD collaboration.

demand services PK/PD in of declined the during revenue number XX% revenue our the high X%. normalize. second quarter. eight to backlog from demonstrating project fiscal highlights. – of while and confidence XX% normalization a four our new half Year-to-date impacted customers relatively customers business four from XXXX that projects, The disruptions continues services four the to strong declined continuing the customers, We booked services bolstering of Turning increased revenue. new in and our new

safety. to good revenue bookings higher we're and and the declined collaborations. our that PK/PD optimistic a improved about fiscal Given during leading fiscal year. bookings for a we increased Last platform QSP/QST through disease. services Phase University software toxicology toxicity the screening in for Drug liver cells software provides announced both and a This to liver service BIOLOGXsym for week, a liver compares with returning for grant will a focused related efficacy the XX% – over of utilize XX%. indicator to further Discovery Year-to-date to versus quarter overall. X%. Institute. donors This This for complex in partnership work The The on signals key macromolecule backlog our healthy approximately BIOLOGXsym and and mechanisms that from validate first organ chip the with secured collected the quantitative platform. allows backlog, SBIR mix prospects is increased $X.X of on part liver view of we simulations. while is as business pre-COVID-XX institute revenue systems Pittsburgh business moving segment liver development bookings data revenue, and for safety year NIH lab from million revenue two positive those provides with second this the wet the With our develop we next-generation of the toxicology years the half the a cadence and growth system of X grant internal

projects model for QSP the to therapeutic targets pain diseases booked addition, support leads uric of prevent which QSP GOUTsym and by disorders. inflammation. of a includes will other will a and compounds the for crystal be candidate propensity In to be QSP therapeutic model we and to COMPLEMENTsym complement during pathway, in and inflammatory impacted of acid the which the joints, system complement formation important nervous quarter. pathway evaluation candidates many

Our XX%. was this and increased PBPK revenue flat Year-to-date revenue quarter backlog increased XXX%.

expand increasing PBPK capacity In for use the new funded exceed announced PBPK and demand for to We as leading more outsourcing. collaborations. cases services seeing are industry January, we two

partnering treatment research diseases. large to in modify transit of GastroPlus absorption are a programs support the of company and compartmental gastrointestinal the advanced ongoing for model, We pharmaceutical with or ACAT,

to a models to the and The large PBPK is both species add animal current with new critical GastroPlus to company validate platform. health animal second

us. strategically As to a funded reminder, important collaborations is

an relationship existing further solidifies it customer. our First, with

with reduce is customers' the it helps needs. and ensure us Second, immediate costs that R&D our our aligned innovation

challenges are these This the with customers the IP and Finally, half collaborations for leadership. can further use well. evidence tool and as the Overall, in the strategy important retains is behind quarter, that from it other year that ensuring increased we its comes our during last services proven GastroPlus second backlog industry own an XX% us. of disruptions

As to the expect year. we growth a this of to business fiscal result, return this second in half

in Our our fiscal us year-to-date gives performance confidence guidance.

are strong accelerated profitability. to growth rates continues business driving software that Our deliver

XXXX supports our for organic our we addition, of strategic to expectations longer-term at opportunities to rates. increase incremental growth any fiscal acquisitions we services growth With our contribute business market continue and look M&A, to second in XX% to addressable growth this and total consolidated exit or for the to should should a pace that respect better In number. Accordingly, is accelerate our the year recovering half fiscal with

Let financial discuss over now call to Will the Frederick, CFO, the me to turn our results.

Will Frederick

Shawn. Thank you,

in rate and revenue software this software business XX% quarter. mix, impacted Our total of the XX% XX% total our growth was in strong positively The our growth of quarter. revenue was

services Our X%, business declined and XX% of it revenue. total contributed

XX% rate year-to-date. Our was growth total revenue

growth was and services was revenue XX%, growth X%. revenue Software

XX% total Software accounted XX%. for of revenue, services and contributed

cost XX% revenue. of margin last Our to lower software was revenue XX% due from year, increased for the slightly and gross quarter, up fiscal

from increase lower-margin in Our services XX% and revenue services projects. due was an XX%, down lower last to year margin QSP/QST fiscal

Our margin the of as XX% gross increased result year-over-year improving mix. revenue software to a total

of cost XX% margin to last slightly XX% due gross lower revenue. and was software from increased fiscal up Our revenue year year-to-date,

salaries was Our in XX% services to last and from increase year training margin including lower services due margin projects, down an and fiscal XX%, workshops. increased

slightly XX% margin to as gross the result Our total a improving mix. software revenue increased of

We growth to in diverse mix product with our of a continue solid the across revenue quarter software portfolio. enjoy entire

MonolixSuite GastroPlus was software MonolixSuite X%. ADMET Predictor revenue. For the ADMET other revenue. was software and XX%, XX%. XX% was software was our XX% and was of was XX%, XX%. our GastroPlus Predictor other quarter, was was Year-to-date, of X%. software

commercial For and fees rate our XX% based the quarter, customers on for was the accounts. software renewal on XX% based

rates educators, we in year-to-date continued the average, customer same on per multiyear to prepare reflects increases We this period. their to ends services customers University+ in XXX the mid-XXs have and with We our patients our based and Renewal changes customers worldwide. accounts. to a based countries. or in lower-cost rates was believe renew for and for based fluctuate XX the compared structure the of be efforts, quarter. quarter term software renewal for rates following offset help and early quarter-to-quarter use on will to prior deals. in on of our this for prior quarter. scientists due year customers, in rate fees normal commercial our which now late contribute change line of fees. customers to historical as revenue Average software This our renewal average an for generation in safer saw discount was Year-to-date, And our treatments development the the XX% by business. price increase our next per a students reminder, to the offers revenue As who before commercial up-selling Shifting program, year rapid either on quarter ongoing XX% license customer free

second services X% services, and as Our services, from breakdown from QSP/QST XX% XX% PBPK from revenue was XX% PK/PD from services. other services quarter follows.

revenue Our from breakdown XX% other XX% PK/PD PBPK services services services. year-to-date was services, services, QSP/QST from from XX% from follows and as X%

to with $XX quarter this the backlog, we from service Total the key $X ended prior year services increased the million metrics, quarter. Regarding million XX% quarter projects prior quarter, year in and compared up

to the of for tax selling compared for EBITDA revenue $X.X $X.X compared year, million or XX% to effective last revenue million partially period $X was million the XX%. of compensation million costs, was last we or last $X.XX. adjusted the and or statement Total of revenue increase X% income earnings local $X XX% to for by year. million million was higher Now, to expense and of in state due in XX% costs, per last increase to $X.X of slight X% $X.X the of effective rate Income XX% revenue Last compared tax from for primarily turning revenue benefit year. or And R&D revenue expense was primarily license expense Net quarter software XX% operating from were million increases in to million revenue to $X.X expenses taxes. million compared a $X.X consolidated offset to revenue last to quarter. XX% increased period diluted maintenance $X.X was R&D income lower and million in fiscal an million, margin Capitalized million, X% $X.X our million, of compared with rate, XX% EBITDA compared of $X.X to year. XX% insurance and of X% tax year. and share or year, saw Adjusted by tax was XX% tax or million associated dispositions. of XX% $X.X $X.XX year. costs last effective same of $X.X expense SG&A year. margin year. same marketing driven and operations of lower to or rate last or quarter The XX% to in compared or to and costs $X XX% were R&D costs the increased the compared expanded last disqualifying $X.X an income million an decreases tax Income and or

reconciliation or As back website. expenses our net related adjusted non-GAAP M&A adding our any provide applicable, on well a other is in income, EBITDA expenses. as GAAP this release a expense calculated noncash We to non-operating relevant the compensation when by metric, reminder, to stock-based and as metric of earnings

year. the last increase marketing offset expense from to and higher revenue insurance an same costs of compensation of expense revenue Income For expense in decreases our Capitalized was in year. R&D rate $X.X year-to-date of and compared or $X.X to of to compared of total last or operations of tax of license SG&A revenue by was million due revenue million, $X.X year-to-date also state X% rate XX% million tax was costs and fiscal period maintenance Income software million last compared or revenue year. period lower year-to-date and of effective local last was to million $XX.X income The $X.X margin revenue, expense year. million was XX% selling were last costs, of of R&D million primarily $X.X XX% increases compared costs, of million, X% effective revenue million and the costs XX% from year. of XX% in X% compared last and taxes. in were same income $X.X million an and revenue or R&D an statement, $X.X expenses million XX% expanded increase or $X for X% $X.X tax XX%, tax XX% or or operating to to to XX% $X.X year.

driven million to share year. was And last dispositions. As XX% margin diluted compared a compared $X.X $XX.X with to XX% primarily year, the disqualifying or year. $X.XX $X.X lower tax by XX% or mentioned, $X.XX. benefit last XX% increased we million saw tax rate, to $X.X effective income increased associated compared last million adjusted per to and Net EBITDA Adjusted earnings to million EBITDA

balance sheet and continued short-term of This investments we our $XXX.X to no quarter, million and strengthen with cash debt.

continued a you, capitalized our sufficient with investment now As we expansion are turn result, activity. back call through support the M&A to potential internal Shawn. well to I'll cash and

Shawn O'Connor

conclusion, first our full half gives trajectory to we when questions. I'll that, a fiscal fund balance Thank year that us growth business the confidence that positive sheet XXXX positioned we outlook. remains achieve candidates. you, Will. take our Overall, and In are of the to a are that your well organic Operator? supports M&A right targeting continued with With we be happy on

Operator

Thank you.

Instructions] now Oppenheimer. of first We from line will be conducting a question-and-answer our [Operator your And Brisebois with Please with session. question Francois the proceed comes question.

Francois Brisebois

Hi. on quarter. taking the questions. Thanks the for Congrats

of – first were November, this a we was the you ended my I think here, about pandemic had yet. quarter-ended wondering, impact. February, really just question last so The Just lot people Omicron so hit hadn't I quarter wondering

in seems at do been on to could any there But the have or you just Omicron? to services side, all the hasn't some which if of go downturn, much. like could it just you So anything maybe right impact the from seems do think maybe – way characterize

Shawn O'Connor

nine we where a a The to kind Frank, compared not where was to has happening the of need thanks last Yeah, were impact, the for if of fiscal we total of to in ago of the very level the those year. years couple, The of quarter in were last every we versus question. back dramatic that quarter to number part half delays latter months, of year. and come cancellations anything, respond three normal third in six at

ability as business the very terms terms data impacted clients business the clinical all. less. in of bookings level our So in increase dramatic quarter at we much Omicron led certainly, the not some in but projects, that of of at terms impact the flow, commence significant to previous backlog And operations ourselves, our the a to of of Maybe nature. churn and uptick and variants with the activity in in there's impact terms with, nothing of dramatically clients, of quarter the of relatively versus speaking, still the trials obviously, were finished was that some

Francois Brisebois

the little you? something can think this XX GastroPlus, Okay. software – this And a of just you've eight you on Great. on it bit, MonolixSuite, think I but Or I strong the Was the customers, a three expected? that there's new those quarter, addition touched from? side, did is come where surprised customers

Shawn O'Connor

come back all for organization, industry business from our they are distributor into a is work. opportunity in us. adding Well, activities, They their new really new moving. process a through The our scientists stepped-up of both license internal Employees coming terms to and which of network. drives are development

likely of And is something competitor up-sells. XX% well benefit just The of XX%, larger there I we're license in its competitive Monolix in. continuing to back so the with more fact The taking product to a of. Monolix, familiar displace terms the them of work competitive product in gets well. off for is revenue investment at the bringing customer and targeted and customers activity in both bite when we set customer's for upsell – the come that spread of and development in terms that's program terms our will well time growth that, very speaks organizations pay portfolio necessarily this to are customers, And with product. they and us a the installed in customer the as specifically. client The taking process increasing great first small from that to base away as and lead on every with the taking new introduction new business year through dramatically upsell new renew, Monolix, in for and of takes are a from product for say really their the that be that licenses can't products seeing its is upsell we're marketplace in the proud of they our product now quarter business the new as typical the activities good. with and a that sales of Lixoft kicking displacing almost of

platforms. software So most three board, performing across yeah, our well across very significant here certainly is the

The lower have other QSP/QST of a clients at capability aren't That other because well. in-house primarily category of the that is our being license growing models, those that operating operate which simply models. category the level many there as

we're software of that seeing our as from contribution other well. segment So,

Francois Brisebois

just a everything lastly, but just decline backlog you increase and understand Great. that maybe here? help decline And decline, small Okay. us of X% the the with can X% in why – normalizing, kind where

Shawn O'Connor

is we that maybe to Frank, a Yeah. inquiry six we response three there. immediate a to that's get on and get performance But to six out, client impact is new to is that Yeah, – than not, booking often three or more we an longer. months months sign timed more that occasionally typically effort, contract work is sometimes the project there and started a deal biggest will for performed get response going that FDA it very a work out quickly. be for to

we terms or that months year, year. three of of six business affects six of in last half our kind the the last was here, quarters the and and quarter to out so gap that at back later, two that And That six of we're in the of low, three to where picked two fourth were most later months to year, where the And revenue work that new last period. in backlog while now declining. bookings translates least and quarters of is the in third trough bookings the up first towards months

in backlog back we So the of than of the our And uptick decline fiscal our impact – the dramatically wasn't that bookings benefit terms year and expect of half to in our year. back X% different us the of expectation.

Francois Brisebois

Great. Thank you. Okay.

Operator

Matt [Operator proceed Hewitt your Instructions] Group. next the of Please Our question. question Capital comes line with Craig-Hallum from with

Lucas Baranowski

look give for I question Matt is guess, Hewitt. from the grants you've received will This sense revenue us first cadence is of our those you what recently. like? Can on some Lucas the a government

Shawn O'Connor

work biggest Yeah. a the achieved. the commercial But collaborations contribute in recently clients with will should about It be to and performed support years, Several The It two $X.X QSP one, linear. grants. say, of million just next announced is the performed – BIOLOGXsym, perfectly platform some not we platform revenue. as QST grants, is more of one It's the well. grants as are will two-year over over that milestones or window time. less I

– but four recent. one be of The Those other FDA an for ones to engaged can with the periods quarters. that grants collaborations FDA that's typically the NIH clients, or we've more an commercial actually maybe collaborations in unusually longer-term normal of two three, grant,

Lucas Baranowski

direct? And Thank then had any but where are through geographically, you you. there now markets a selling helpful. That's distributor, been you're going

Shawn O'Connor

line. that We've nature, we've – a Predictor. GastroPlus so, changes in distributor South months of in MonolixSuite in new six of added last America added support China the for over a We've No ADMET Lucas. or product the distributor

added distributors. of a couple new we've So

we We have from underperformers, geographies believe the improve can flow revenue a are not different but way. in we that distributors little supporting any by those of those relationships, in the that process those reviewing we

us, opportunity So an it's area go we of after. just issue, sits focus we but that there that an think no can for

Lucas Baranowski

That's Thank had. all you I very much.

Operator

this At for closing floor I'd over back remarks. to there the time, further questions. no to turn like Shawn And O'Connor are Mr.

Shawn O'Connor

expectations care. today. guidance everyone's back our for fiscal forward position Very we're Well, of updating again Take in Thanks expectations, in good. to the fulfill on confident I the and to look feel appreciate attending our terms very you half attention business I of the for the soon. announcement year. our and

Operator

this teleconference. today's concludes And

your disconnect at this You your time. may you Thank participation. for lines

Simulations Plus (SLP) 7 Apr 222022 Q2 Earnings call transcript