SLP - Earnings call transcript Q3 2022

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Operator

Greetings, and welcome to the Simulations Plus Third Quarter Fiscal 2022 Financial Results Conference Call. At this time, all participants are in a 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

Will Good afternoon, will XXXX CEO, open third portion CFO, fiscal the floor to results Welcome Shawn the conference we and our our financial is call. quarter today their questions. everyone. With call, After Frederick. to O’Connor; of me

to uncertainties. I our a are no these are estimates that except forward-looking that or everyone involve mean for Words in anticipate historical we and begin, that actually be remind discussed expect this of presentation can Before anticipated will but information, of assurances best this and risks number recording, like place. would like that events believe, the matters as expected take results there or that statements

turn in factors highly With sustainable on Company’s our said, qualified technical company identify call Further that SEC. reports the to to close the those So, are our versions software competitive markets. quarterly and of our statements. to ability customers, on is over I include, such continue of to limited contribute to not and risk advantages, pharmaceutical software contained the retain annual terms in existing industry, general to actual the attract States to but differences to growth, and acceptance future the ability Company’s acquisitions ability that results information maintain favorable our from improved Shawn our finance would our significantly Factors ability to, O’Connor. new with our United the and and staff, our the the of Shawn? could to by like economics filed differ

Shawn O’Connor

and for with long-term was purely service software underlying and Thank growth data growth. supporting revenue top you, XX% businesses quarter view growth both across our We bottom The and Brian. another organic. had encouraging our sustainable line strong

This experienced is into year. segments, software business accounts. to rate deeper of adoption smaller improving but an and saw penetration year-over-year all simulation We grew and XX% client growth across the customer of growth modeling industry. last accelerated compared Our indicator our throughout

our our and grow to initiatives benefiting geographic addition, cross-selling are expand business. presence In software

operating said quarter, backlog revenue quarter, revenue I this this second growth fiscal In we last As expected support our service the quarter. and half quarter, experienced to of during year. grew increasing with during We the in and increased XX% $X.XX maintained we our free strong adjusted our was the significant margin per services leverage flow. profitability EBITDA generating share, to EPS XX%. cash

XX%. GastroPlus XX software signed Moving made to increased X revenue third upsells. our quarter We and highlights. commercial clients new

Asia and due the new signed rates to Growth supporting kinetics MonolixSuite upon in vitro to mainstream developers also product significant clients, in We and of making is a will renewal injectable are DDDPlus, but XX exchange up of pattern to XX and novel by on new Additionally, we during progress expand XX% announced the revenue specific the declined dissolution customers partner. vitro for apply into year-to-date. with results industry company dissolution significant saw GastroPlus renewals. in pharmaceutical users will enhancements is collaboration space drug GastroPlus. designed funded April, our upsell good to our continued. journals timing existing we the expand funded benefit increased the improvements commercial This a and capture DDDPlus of X% was the the In vitro and within using approaches systems quarter quarter the of large in development. impacts. currency mechanistic in our from collaboration, despite Through the this software. rate foreign I’d tool simulation focused analysis. and new in to Recent in growth we note models collaboration validate quarter, that peer-reviewed referenced modeling to

markets ADMET established believe new is still addressable expanding and create commercial quarter. structures We but growth to continue customers the quarter, its and in Japan. the XD ADMET up had X allowing and of market share year-to-date. revenue delivered market is descriptors. version in cutting-edge in Predictor We that XX.X X% property XD in We XX% MonolixSuite software chemical models China geographically added to users from quarter, the in upsells X within prediction this to released access our derived taking

PK/PD this trends recent trends year-to-date area revenue in Turning to -- to services. X%. growth increasing increased our reversing and XX%,

to the of year-over-year worked Our good projects in bookings consultant increase higher XX% number and which business utilization, disruptions higher include a the first optimistic in services increased for contributed PK/PD are a overall. our in the we With third pricing of result improved yields, project the year Encouraging prospects to expansion. trends normal about half of contributed quarter. volume margin project backlog, bookings and the

model-integrated long-acting injectable trial’s and long-acting long a the During the completed and drug Administration bioequivalence products. delivery evidence bioequivalence Center demonstrate power quarter, the the alleviate We on novel Lixoft funded for Drug Complex LAI project was or from relevance and calculations. grown and of U.S. a FDA-sponsored proposed Cognigen to Generics lower and newly X% for to modeling QSP/QST to were establish opportunity This need Research the Food developers for leverage a approach implantable suitability design workshop. bioequivalence for the the injectables. The great show for the X% has products project to increased to of year-to-date. duration quarter and and results and presented an organization across our revenue at scientists population

to from in future quarter, disruptions significant allows evidence modeling value the this increasing second on segment is in to behind increase will reflects continued and and many an QX. further and XXX%. perceived the these this backlog grow, challenges XX% Overall, new up last for XX% performance PBPK projects revenue during the of that cycles. our quarters. half projects and deeper are services in year QST and saw acceleration As The the team drug the commence into you increased projects recall, Revenue of fully these quarter initiate cases number QX now year, QSP the planning the use impact that and the PBPK these the bookings is in us. implementation of XX% of more and impact development up of providing projects

of our performance end robust heels at the to the high XX% revenue year-to-date, XX% of currently quarter, our for into full are heading the fourth we On year. guidance the

that XX% halfway million comfortable range the guidance through growth. million to are to Given we nearly our $XX quarter, narrowing to we’re or $XX XX%

approximately these seasonally quarter slowest Within total be XX% Note revenue. typically fourth that software our expect is we of the ranges, to quarter.

driving rates half in our Lixoft, especially the year. of On seasonal the revenue for prominent where made fiscal are decisions higher the side, growth first year, software is typically impact buying early the in

services our into months the projects fiscal to side, some quarter or be valuation Europe. quarter in the out This continue On are time of Concerning pulled evaluate it of quarter. first rationalization. during to forward opportunities, is third our vacation to summer into levels M&A, pushed fourth we due our seeing especially is taking for common we customers our and

you will update when announce. something there to is We

turn the to now me Let the discuss call Will financial to results.

Will Frederick

services growth of Total the software revenue quarter, growth comprised XX% you, Thank was XX% growth. XX% rate and in Shawn.

XX% quarter, Software XX% be of fiscal continues our which the represented revenue to year to XX% guidance. during above

and growing software XX% growing Our with XX% total X%. growth revenue year-to-date, services rate was

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

Service XX% Software last XX% to from margin line. projects. leverage to gross to was higher year-over-year XX% quarter, revenue the fiscal increased increase an year gross and due higher-margin margin XX%, utilization was due year in improved fiscal from of Total software XX% for mix. up up due consultant last the revenue higher margin cost the from services to and

XX% higher last was increased slightly Software margin gross XX%, revenue last mix. from margin gross year. fiscal the to up Total to due year. year-to-date, flat software was to essentially XX% XX% Services margin

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

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

following line ongoing renewal historical and This relatively their quarter. our terms dipped revenue in fluctuate revenue by in fees increases discount rates. on renew upselling also line in quarter by rate with decrease renewal was offset year-to-date, the but changes a relatively but on rates. for Average is down based remains with per rate continue structure accounts, normal reminder, remains our with to when in our renewal efforts, following was customers our Year-to-date, be this exchange impacted quarter XX% quarterly historical which based license price customer trends. quarter, reflects trends. the currency their multiyear historical deals. XX% slightly Average after fees the term commercial for this to and customer year-to-year ends ends current The customers As quarter in rates the before or license based in slightly line per on foreign

have now customers countries. XX University+ XXX also We in

As program for business. offers next generation our the and worldwide. to lower-cost educators services rapid previously contribute of for development Shifting mentioned, to and this help students software use safer, our of free to treatments prepare of patients scientists the

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

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

last Regarding year, million. million compared robust year this approximately and total from last increased a quarter metrics, increased key $XX by service to backlog service projects XX% $X to

the income compared was for quarter the Capitalized or were or SG&A of last the last to revenue quarter. X% $X.X $X.X compared year. million revenue or year. consolidated of Now turning statement was period million expenses R&D quarter $X.X for were XX% expense million of or period or million of same our compared revenue to $X.X fiscal of million or million year. $X.X in the or to same compared last revenue the X% year. or X% million to revenue revenue R&D last in XX% of $X.X revenue costs to of $X.X Total million X% R&D XX% revenue X% for $X.X

the in year, was tax to in-person and and the was conference for increase margin while of XX% been Income cost to and expenses. fiscal primarily XX% XX% quarterly expense SG&A tax reflecting QX was last last million costs in and $XXX,XXX year, As to payroll driven in lower expense due market, wage to when competitive due a to due headcount was labor shifted a from tight increases costs in $X.X payroll the as year Income cyber the to that attendance, XX%. removed, trial have in a more increases D&O rate effective to increases increase compared QX semimonthly expense last pressure we from increases switched operations during by X% COVID-XX mentioned increased timing $X.X and insurance. at we The by salary operating from allowing biweekly increased operating salary decreased flat to SG&A approximately restrictions fiscal personnel year. and million,

we growth This for compared from R&D that to quarter, credits payroll recognized tax the $X.X quarter year’s This decline filed of the timing benefit tax also Similar year reduced Net lower from for due increased prior amendments the income the rates to our income EPS QX, to to benefit payroll $X.XX. return to we $X.X last increased tax XX% EPS, year. were rate the to the or million in of year. Keep first to expense $X.X year. recently. and effective $X.XX million million compared last quarters. rate income that relative margin $X.X impact Diluted and two modestly mentioned. XX% XX% adjusted QX compared mind to to to the net the and last was to earnings per compared share primarily last or million expense Adjusted due was EBITDA net EBITDA shift previously for the

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

XX% mix. by quarterly adjusted Adjusted million, lower revenue period with our effective in expanded For $X.X $X.X or is earnout were sorry, costs million of $X.X EPS and primarily with increased to versus We reflecting travel and XX% of the XX% revenue I’m and no was expenses income of $XX.X SG&A diluted an increased million EBITDA management Income to year-to-date revenue to last XX%. licenses inherent year-to-date costs EBITDA last XX%. $XX expanded compensation this through disqualifying to increase the also year. operating $X.X to year-to-date the R&D back to to to million cash net XXX, statement, million revenue, the investment R&D million the revenue X% income payment final tax and internal as this $X.X a for was services to year. in up due saw income cash or the amounts insurance CRM. sufficient up I’ll was in $XX.X associated from to due of million of and driven investments increases $XX.X Microsoft compared tax decreased D&O of were XX% the fiscal holdback million, revenue dispositions. ERP acquisition. we XX% by you, last year, debt. activity. million effective benefit in or costs, our potential and well million, well Cash cash year, rate, year. and X% million $XX.X and of year. tax primarily ended with now XX% capitalized $X.X Dynamics Capitalized $X.X Lixoft of increased increase compared last due of or margin the remain with to X% was to continued Shawn. of short-term expense and to Last $X.XX. as compared Income in from quarter year-to-date year-to-date our stock XX% with or $XXX.X implementation while is slightly turn revenue XX% costs, XX% Net last to was quarter -- or cyber our from same increasing We same million software last revenue expense compared XX%. margin the call support to in year Similar and variance, expansion personnel period -- tax expense million rate And R&D the of increases million $X.X of the total year, software to expenses our M&A the XX% leverage revenue or X% operations

Shawn O’Connor

with business Through Will. you, strength business. noteworthy continued year our our for is the in Thank quarters, three software as a service unfolding rebound expected and

market New confidence new software in positioned in increases our confidence that the a with the and silico-based versions are core use to give solution give use efficiency our backlog in modeling service of bring geographies the to revenue place of number expand. increasing of simulation business us solutions and into our and program Longer well into as in the drug to development of we our headed development Increasingly, a an way drug expansion solutions and by term, software, us in our of cross-selling improved growth, this our while robust continues validate significant ecosystem. parts fiscal regulators University+ program ‘XX. projects our are

biotechs case provided FDA; modeling Drug annual the Anvisa; from attendees increased UK. addition, or the a development event we speakers MHRA our are a with perspectives that This on the MIDD. demonstrating featuring growing use conference, and positive indicator In Brazilian is of solutions. and software global In Canada; studies, validation simulation Health by our of adopting agency, smaller the Development, MIDD regulatory of regulatory and clients second our number leading conducted February, Model-Informed

also power Operator? I’ll to to and STEM Plus mentorships, replay With are your the of channel. center take building the highlighted the the models gap and for Divisional selection. led within late-phase learning including scientific for I’m Simulations industry, PK/PD talks sessions dose your event women particularly YouTube using population in and and available authentic This be validating proud We of bringing the Fiedler-Kelly. Women our self to approaches pharmaceutical had Cognigen’s meaningful the and covering questions. happy in on machine Jill President, by closing roundtable, All that, resource topics Science the support workplace.

Operator

Our Hewitt comes Instructions] of first from with line the Craig-Hallum. Matt [Operator question

Matt Hewitt

strong and Good quarter. afternoon, few a Maybe on congratulations questions. just the

I concern high the helpful. you’re quarter one, First pharma, be funding, think, seeing, Obviously, what that Anything biotech, market? in the in markets. regarding level, there’s Shawn, happened are given of been would seeing you lot or past those a so over what’s

Shawn O’Connor

Yes, Matt, thanks.

in industry Their into the in sense picked small in investments modeling their hiring organization, small is the has modeling in Our of of people but visibility really lagged and players has terms of historically pharma quite not earlier. and just acquisition, simulation, consulting both, up, positive biotech. the larger also actually which in movement

reflective seen from of the small haul. on and long whatnot. simulation, can a are we’ve that’s Certainly, and think it in the in footprints modeling business we’re that of impact especially commitment top terms have to seat And of in recognition of of counting in pickup terms it But licenses challenges albeit projects, I customers the to cautious the number segment. industry. terms the funding and out there, single there, of bottom biotech small the in in

I in funding adoption, and see budget positive on yet being it the simulation terms penetration in terms so, of organizations the its today cautious And are situation. of of modeling in terms those tighter and of of because endorsement and that a

Matt Hewitt

in stay see helpful. fourth range? margin That’s quite we from quarter. anticipate as the How service Maybe the provided you of that slowdown revenue income in But, quarter? regarding about should you typically should be low-XXs gross the anticipate some a thinking software the here you. Should maybe fourth margins in do what I’m a kind margins Thank not here we question that statement. of a You gross we kind as sure guidance.

Shawn O’Connor

I last the relatively service number margin think has our quarters. of been through flat

seeing play scientific side lot of compensation efficiencies we been in But the we’ve there. a the into of see brought think pressure I of some terms also side. staff

XX% been margins software running than here being been impact to split of consulting typically that’s is at we’ve and purchase ahead bit margin little and that continue. year. that with higher our overall going consulting XX-XX during should revenues helped a software of of revenues. that we’ve gross blended biggest the our terms come net from That So, -- the And in

We’re software lot both years the occurs side fiscal not of summer the for terms and software seeing the slower from a season is consulting in sides fourth middle of months business, the business. in that side, of our in clients’ both of slowdown made play our our quarter, quarter the the coming it natural on in of the decisions vacation into

Matt Hewitt

run one, just business software Got could or the if for I’m I’m this. a and back the into rate out currency hop saw it. just constant you maybe, curiosity, Q&A. currency the last a you One what Will, I’ll help the with did me of just renewal you And of was -- that of constant you there? decline -- was currency part that FX that mentioned renewal out rate? curiosity, then

Will Frederick

mean, It would about I impact have percent. of upticked this $XXX,XXX a currency exchange Yes. we a couple had quarter. on

Operator

Our François Brisebois from question comes line the of Oppenheimer. next with

François Brisebois

Hi. the Congrats quarter. on

of Just here. a couple questions

In of you just for of start us historically maybe you year, gives next kind to guidance? at the can terms remind looking that guidance confidence what

Shawn O’Connor

the to year side as a came Yes. but mean, reflected next XX% Thanks, year into service this Frank. business fiscal to XX% the that of in end we lot of came ‘XX year out guidance at on ‘XX. certainly I momentum the business guidance year a we’ll with fiscal quarter, of the the of out software ramped We get into terms time quarter. the

strong product we’ll the and backlog areas, on back growth built a the X side, main see that we’ve half ‘XX, across side to drives And return look As our year. coming business. in profit the X the ADMET that software continued good GastroPlus, starting half this service our second to certainly, good -- Predictor. up we’re And Monolix in into of or of performance of the off a our each on we forward of be first year,

have certainly we going of operating more business So, much out strength to year. of our year, both started as sides this opposed into where next

I we into guidance -- robustness issue in to business a year would year, So, for the few anticipate continue next close when of I that months next the we would and out year. hope see

François Brisebois

you software service little should that guide, Just see expect bookings bookings, should be little side revenue greater to you what see the services a XX%, there? color we trim a on similar if versus expected then, were a than had softer as And we with they expected? the the -- than any -- Great.

Shawn O’Connor

the fourth of Frank, terms In longer quarter term? specifically, or

François Brisebois

imply that on to maybe what from bookings, year, XX% the on there’s the you’ve imply little XX% the range, services softness the expectations if final -- Well, than far or going to Yes. a that XX% with that So, seen and expecting side similar should you’re right? versus no? that revenue so in year greater service growth XX%, maybe on prior should greater

Shawn O’Connor

Historically, quarter is soft on the side. relatively Yes. services the fourth

of that on the also two business, that’s So, more service it’s sides dramatic both our the mix businesses, what side. Yes. on between

François Brisebois

their you’ll more you all valuations Okay, to something people sense Or that is when And discussions? the know be to talk Is you from M&A that high? starting give be mentioned -- great. when about it when to there But little it’s color that about from helpful. time making you that kind I used there’s valuation talk maybe then, can just of front, any realize a to on a actually at say. little would the

Shawn O’Connor

mean acquisition. it’s the I partnership is some view the out either discussions them the funding is through part funding And is challenging the there. their private terms discussions late. looked to therefore, certainly the acquisition perhaps bit people there that alternatives IPO a of being from [indiscernible] of Certainly, opportunity or public, or ongoing the out of is market getting multiple going picked alternative are other Yes. of in presented Clearly, two of potential which more new little in on impact partners directions up now. in the terms and at

little a were a also was much more in bit are negotiated existed valuation. of is a different, not X.X-year today IPO little valuation certainly So, to better with when something compared certainly a both opportunity terms stronger. and item, ago, Discussions is alternatives little the funding simple, that always factors but opportunity

François Brisebois

quarter. Okay. That’s you helpful. Thank again the very congrats and on much,

Shawn O’Connor

Take care. Yes.

Operator

James. of comes next from Our question Raymond Leone Dane with line the

Dane Leone

And the the absolute I progress. XXXX more Maybe services the the and specific been comp looking services there one comps, the may congratulations of the have million decline on Q-on-Q side I kind just for still for think this on versus at $XX Granted, backlog last Hi. of million below in Thanks to guess, QX. expectation a it’s marginal the quarter. on the side. right, quarter. growth number $XX.X is an for taking questions, more

this Just curious more maybe on obviously, right so services softness in for something spending you. of questioning the is Thank suggests quarter trend and in reason work for that cover there for expecting. of there fourth companies little of part be around the the we’ve biotech and expectations and funding all clearly The year. quarter more the is might terms had now quarter fourth with, the middle of been -- into I line the a fourth a is in that gone a more as this seeing you’re rationalization versus the what you reason issue

Shawn O’Connor

Yes. Dane. Fair enough,

to back anything, service the is of Our business -- comes the softness, side vacation. if in

people they taking a my high homebound observations in whatnot. after couple last that is normally of the they are COVID-impacted that as take -- and years and of were of maybe vacations One years finding couple didn’t

seeing So, way by It’s driven all. at projects a if bookings in cancellation slow of on that or anything, just exaggeration any not seasonality. we’re an

backlog grow third during XX-plus-percent quarter. We continued to service past this

of we’re increase their success small our not in put therefore, in a out So, the portion and is that there, of we’ve spending The small and customer our increases the is terms funding overall segment, being base of seen in there. shifts as of the segment or of And customers biotechs or a spending. that an business number impactful in business whole. in business service a software as decreases small while still

off to were service improve, beginning of reflect of to up little continue So, on step but will the at our summertime the softness, the quarter. we of year, continued its a where performance business seasonality will

Dane Leone

follow-up, And maybe if could. one I

the of the conducting business more execute on getting to deals transactions Thank you. on on In are the side you software acquisitions, or ability or right development services potential side? positive terms

Shawn O’Connor

all. on the shifting Opportunities exist is there. my wouldn’t both at view of say I sides there ledger

analytical portfolio of terms in of good that of Software products be tools. extensions our tuck-ins data would and

On book of coverage, the good service of is extend to and the especially to our region. business, for bring focused set our opportunities, primarily always a, skill there, expand consultants America geographical in in we’re a offerings side, looking the service North and looking which scientific

preference? in say, has any either there And similar So, population on the answer terms target would are our there our ledger discussions, of discussions terms The the of of would of sides evolution terms valuation no. in there. very been or change valuation be out I change both in in

Dane Leone

a Thanks. maybe Asia strategy for of terms kind you’ve you me. in done remainder year? update And just Could us final get there question or of business Thanks. for plans the in the just And to over exposure? the any hiring of

Shawn O’Connor

Yes, marketplace -- is a certainly. We Asia distributor-covered for us.

Korea, Japan, We in have distributors South and India. me, too China, North excuse Korea --

historically. in highest been has our performer Japan market Asia

we regions, growth more to as in This little that a some good in consulting saw marketplace. employee timely last that those a in service good direct opportunities and quarter, there each our the we we’re opportunity assist on and take and distributor geographically market of bit seeing hired We’re as starting. well approximate India

that in our continue supplement of distributors in more a I the will on terms looking our to that So, think resources evolve world. to to region go-forward place basis of

Operator

[Operator like back like comments. floor at questions I it Mr. turn to closing no for this now O’Connor the further to over Instructions] looks would there time. are And Shawn

Shawn O’Connor

a interval to operator, fiscal the forward in at time thanks, reporting look and quarter the in today. year. Thanks, end everyone, again of Company short our and joining call of next I your the interest care. for Take

Operator

this And today’s concludes teleconference.

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

Simulations Plus (SLP) 6 Jul 222022 Q3 Earnings call transcript