Simulation Plus has a market cap of $43.4 million; its shares were traded at around $2.82 with a P/E ratio of 21.6 and P/S ratio of 4. Simulation Plus had an annual average earning growth of 43.2% over the past 5 years.SLP is in the portfolios of Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations:Consolidated net sales increased $374,000, or 15%, to $2,811,000 in the first fiscal quarter of Fiscal Year 2011 (“1QFY11”) from $2,437,000 in the first fiscal quarter of Fiscal Year 2010 (“1QFY10)”. Sales from pharmaceutical software and services increased approximately $316,000, or 18.2%, and our Words+, Inc. subsidiary s sales between 1QFY11 and 1QFY10 increased approximately $58,000, or 8.3%. We attribute the increase in pharmaceutical software and services revenues due to an approximately $330,000 increase for license renewals, with the majority from new customers and orders for additional module licenses from existing customers and the first GastroPlus workshop fees which offset a decrease in funded collaborations as a result of completing all but one of these large contracts by the end of August 2010.
Consolidated cost of sales increased $134,000, or 22%, to $741,000 in Q1FY11 from $607,000 in Q1FY10, and as a percentage of revenue, cost of sales increased 2%. For pharmaceutical software and services, cost of sales increased $64,000, or 22%; however, as a percentage of revenues, cost of sales were 17% for both Q1FY11 and Q1FY10. A significant portion of cost of sales for pharmaceutical software products is the systematic amortization of capitalized software development costs, which is an independent fixed cost rather than a variable cost related to sales. This amortization cost increased approximately $39,000, or 28%, in 1QFY11 compared with 1QFY10. Royalty expense, another significant portion of cost of sales, increased approximately $19,000, or 20%, in 1QFY11 compared with 1QFY10. We pay a royalty on the core GastroPlus software licenses but not on its optional modules. We also pay royalties on the Enslein Metabolism Module in our ADMET Predictor software in accordance with our agreement with Enslein Research, Inc. The cost of sales for contract studies, which consists mainly of salaries for scientists, increased approximately $6,000 due to staff expansions and increases in salary for existing employees.
Consolidated gross profit increased $240,000, or 13%, to $2,070,000 in 1QFY11 from $1,830,000 in 1QFY10. We attribute this increase to the increased gross profit from pharmaceutical software and services which outweighed a decrease in Words+ gross profit.
Consolidated selling, general and administrative (SG&A) expenses increased $58,000, or 6%, to $1,062,000 in 1QFY11 from $1,004,000 in 1QFY10. As a percent of sales, SG&A decreased to 38% from 41% in 1QFY10. For Simulations Plus, SG&A increased $61,000, or 10%. The major increases in SG&A expense were commissions, travel, investor relations, and salaries which outweighed decreases in bonus to officers.
We incurred approximately $395,000 of research and development costs for both companies during 1QFY11. Of this amount, $187,000 was capitalized and $208,000 was expensed. In 1QFY10, we incurred $462,000 of research and development costs, of which $201,000 was capitalized and $261,000 was expensed. The decrease of $67,000, or 15%, in total research and development expenditures from 1QFY10 to 1QFY11 was due to the fact that our CEO spent more time in S&GA activities than R&D activities.
Consolidated net income increased by $138,000, or 32%, to $568,000 in 1QFY11 from $430,000 in 1QFY10. Diluted earnings per share increased 34% to $0.0343 from $0.0256. We attribute this increase in profit due to the increases in gross profit and other income which outweighed an increase in expenses.
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