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Simulations Plus Inc Reports Operating Results (10-Q)

January 13, 2010 | About:

Simulations Plus Inc (NASDAQ:SLP) filed Quarterly Report for the period ended 2009-11-30.

Simulations Plus Inc has a market cap of $21.6 million; its shares were traded at around $1.36 with a P/E ratio of 17 and P/S ratio of 2.3. Simulations Plus Inc had an annual average earning growth of 16.7% over the past 5 years.

Highlight of Business Operations:

Our recognized world-class expertise in oral absorption and pharmacokinetics is evidenced by the fact that our staff members have been speakers or presenters at over 50 prestigious scientific meetings worldwide in the past five years. We frequently conduct contracted studies for customers who prefer to have studies run by our scientists rather than to license our software and train someone to use it. The demand for our consulting services has been increasing steadily, and we expect this trend to continue. Long-term collaborations and shorter-term consulting contracts serve both to showcase our technologies and as a way to build and strengthen customer relationships. Revenues recognized from consulting services (not included funded collaborations – only consulting for specific drug projects) during the first quarter of FY10 were approximately $207,000 compared with just over $171,000 in the first quarter of FY09, and we estimate approximately $250,000 of study income for the second quarter based on work in progress, compared with approximately $140,000 in the second quarter of FY09.

Our consolidated net sales increased $304,000, or 14.2%, to $2,437,000 in the first fiscal quarter of Fiscal Year 2010 (“1QFY10”) from $2,133,000 in the first fiscal quarter of Fiscal Year 2009 (“1QFY09)”. Sales from pharmaceutical software and services increased approximately $305,000, or 21.3%, while our Words+, Inc. subsidiary s sales between 1QFY10 and 1QFY09 were almost the same with a marginal decrease of $1,000, or 0.1%. We attribute the increase in pharmaceutical software and services revenues due to an approximately $252,000 increase for license renewals, with the majority from new customers and orders for additional module licenses from existing customers, and an increase of approximately $52,000 in study contracts and a Grant.

Consolidated cost of sales increased $48,000, or 8.6%, to $607,000 in Q1FY10 from $559,000 in Q1FY09, and as a percentage of revenue, cost of sales decreased 1.3%. For pharmaceutical software and services, cost of sales increased $67,000, or 30.4%, and as a percentage of revenue, cost of sales increased to 16.7% in Q1FY10 from 15.5% in Q1FY09. 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 $27,000, or 23.67%, in 1QFY10 compared with 1QFY09. Royalty expense, another significant portion of cost of sales, increased approximately $18,000, or 23.2%, in 1QFY10 compared with 1QFY09. We pay a royalty on GastroPlus basic software sales but not on its modules or other software sales. We also pay royalties on the Enslein Metabolism Module in our ADMET Predictor software in accordance with our agreement with Enslein Research, Inc., which provides 50% of revenues received from licenses of the Enslein Metabolism Module to Enslein Research, Inc. The cost of sales for contract studies, which consists mainly of salaries for scientists, increased approximately $22,000 as our revenue from study contracts increased, because these activities are not capitalizable software development activities.

Consolidated gross profit increased $256,000, or 16.2%, to $1,830,000 in 1QFY10 from $1,574,000 in 1QFY09. We attribute this increase to the increased revenues from pharmaceutical software and services, and the increase in Words+ gross profit.

Consolidated selling, general and administrative (SG&A) expenses increased $100,000, or 11.1%, to $1,004,000 in 1QFY10 from $904,000 in 1QFY09. As a percent of sales, SG&A decreased to 41.2% from 42.4% in 1QFY09. For Simulations Plus, SG&A increased $79,000, or 14.6%. The major increases in SG&A expense were travel, advertisement, commissions, bonuses to officers, recruiting, and telephone. This increase outweighed decreases in expenses for trade shows, salaries, and payroll taxes.

We incurred approximately $462,000 of research and development costs for both companies during 1QFY10. Of this amount, $201,000 was capitalized and $261,000 was expensed. In 1QFY09, we incurred $471,000 of research and development costs, of which $202,000 was capitalized and $269,000 was expensed. The decrease of $9,000, or 1.9%, in total research and development expenditures from 1QFY09 to 1QFY10 was due to more R&D salaries being recorded as cost of sales for contract studies during 1QFY10 than in 1QFY09.

Read the The complete Report

About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

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