Simulations Plus, Inc. (NASDAQ:SLP) Q2 2019 Earnings Conference Call Transcript

Apr 09, 2019 • 04:15 pm ET

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Simulations Plus, Inc. (NASDAQ:SLP) Q2 2019 Earnings Conference Call Transcript

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Presentation
Executive
Shawn O'Connor

to 15%. The second and third quarters are typically our strongest growth quarters, so we appear to be in line with these expectations for the year. Our gross margin of 74% was an increase over last year's second quarter gross margin and this year's first quarter gross margin, which were both 71%. The gross margin improvement was contributed too by increases from both the software and consulting revenues.

Our net income and earnings per share results were up in year-over-year comparisons, but not to the level of our revenue growth increase, even after adjusting last year's second quarter results for the one-time tax benefit received in that period. John will speak to the adjustment later in the call. On an adjusted basis, net income was slightly up year-over-year and earnings per share increased to $0.12 from $0.11 year-over-year. This outcome is reflective of the investments we're making in sales and marketing resources, fees related to more aggressive consulting recruitment, the cost of initial placements of staff in Europe and the significant refactoring project in our software business that is impacting on our R&D expense. These investments are being made to position the Company to support future revenue growth at or above our historical range. That said, the impact of these investments will diminish in coming quarters and our expectation is that our year-over-year comparisons for the full year of fiscal year '19 will be in line with fiscal year '18 full year results. For example, our SG&A cost, which had crept up to 36% of revenue in the first quarter, fell back to 33% in this quarter and total operating expenses stepped down from 43% in the first quarter to 42% in the second quarter. Our mix of revenues for the quarter remained consistent. Our software revenues represented 56% of total revenues. They were 57% for fiscal year '18 and grew at 12% for the second quarter year-over-year. Our consulting revenues were 44% of total revenues and grew at 19% for the quarter year-over-year.

Turning to our second quarter fiscal -- second quarter fiscal results by division. In our Lancaster division, software revenues were up 12% year-over-year and consulting revenue in this division declined 8% year-over-year. Our Lancaster division continues to enjoy good overall revenue growth in line with seasonality with strong renewal rates. Consulting revenue was down due to, A, the timing of certain project milestones and ,B, allocation of resources to the refactoring project.

Breaking down our key software metrics for the division, 74% of revenue was from renewals, 16% from new licenses, 10% from consulting. Our renewal rates were 85% based on accounts and 93% based upon fees. Our license units of 246 were up 8% year-over-year. We added 12 new commercial companies and 10 non-profit groups. We have projects with 22 companies and four funded collaborations. Overall, we work with top 20 pharmaceutical companies and nearly 200 organizations worldwide.

A highlight in the quarter was the expansion of licenses at both the US and China FDA.