Simulations Plus, Inc. (NASDAQ:SLP) Q2 2020 Earnings Conference Call - Final Transcript

Apr 09, 2020 • 04:15 pm ET

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Simulations Plus, Inc. (NASDAQ:SLP) Q2 2020 Earnings Conference Call - Final Transcript

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Executive
Shawn O'Connor

with revenue growth performance in our target of 15% to 20% revenue growth and operating and EBITDA margins that exceed our existing performance. I welcome Jerome Kalifa, Lixoft's Co-Founder and Chairman; and Jonathan Chauvin, Lixoft's Chief Executive Officer to our executive management team, and I also welcome the whole Lixoft's team to the Simulations Plus family.

With regard to our operating results, Simulations Plus delivered another strong quarter of execution. As you may recall, our stated goal was to deliver organic revenue growth of 15% to 20%. And once again, we exceeded this goal with 22% growth. This was our third consecutive quarter with revenue growth in excess of 20%. Our software revenues grew 12%, in line with prior periods. These strong results were achieved despite lower-than-anticipated new license business from our Asian distributors where COVID impact was first being felt in February. Specifically, we saw about $200,000 to $300,000 of new business in Asia slip out of the second quarter, more with regard to COVID dilemma. Our service revenue growth was strong across each of our divisions coming in overall at 35% growth. The Lancaster team is busy with many collaborations we have announced over the past several months. Cognigen is operating at capacity with full backlog. And DILIsym grew this quarter at 45%, down from their 89% growth in the first quarter, but still excellent and more in line with our capacity.

Our gross margins improved to 74% overall, benefiting from a seasonally higher software quarter. Our mix was 52% software with margins of 85%; and 48% consulting with margins of 63%. Net income and EBITDA as a percentage of revenue were generally within historical levels, but impacted by one-time transaction expenses related to the Lixoft acquisition. John will speak to these in detail later in the call.

Let me now speak in more detail to the impact of COVID on our business. Operationally, about 40% of our workforce already worked remotely and nearly everyone was equipped to do so. As a result, the transition to a 100% working from home has gone quite smoothly. Indeed, our entire workforce is now working remotely, and productivity is essentially unchanged. Our industry has seen the cancellation of most conferences. We are conducting trainings and workshops virtually, and we have transition sales activities from face-to-face meetings to virtual meetings. We have been completed an acquisition this quarter remotely. I believe and early results reinforce that Simulations Plus is well positioned to weather this storm compared to other companies. We have a strong balance sheet with ample cash. We've generated years of consistent profitability, and we exercise prudent expense management. Even after the use of cash to complete the Lixoft acquisition, our cash position of approximately $8 million is adequate and exceeds our cash position subsequent to our two previous acquisitions.

We recently secured a line of credit, not out of cash flow concerns, but rather as a minimal cost insurance policy. Rates for such facilities are excellent, cost to put them