Q1 2020 Earnings Call
Okay.
Okay.
Yes.
Okay.
Absolutely.
Okay.
Okay.
Okay.
Okay.
Good.
Okay.
Yeah.
Okay.
And the broadcasters now starting all attendees are in listen only mode.
Uh huh.
Yes.
On behalf of simulations plus.
I welcome you.
Our first quarter.
Full year 2020 financial results conference call in Webinars hosting the call today.
Simulations, plus CEO , Sean O'connor, and the company's CFO John glass.
And opportunity to ask questions. We'll follow today's presentation. You may have been written questions using the questions pain control panel or you may use the handwritten icon under control panel to ask questions directly. Please research enter unique audio penned displayed rejoin the call.
Before beginning I'd like to remind everyone that with exception of historical information. The matters discussed in his presentation are forward looking statements that involve a number of risks and uncertainties. The actual results of the company could differ significantly from those statements.
Second call will contribute to subject, which is include but are not limited to continue demand for the company's products competitive factors the company's ability to finance future growth the company's ability to produce in market new products and timely fashion the company's ability to continue to track to retain skilled personnel in the company's ability to sustain or improve the currently.
Level of productivity.
Further information of the company's risk factors contained in the company's quarterly and annual reports and filings Securities Exchange Commission would that said, let's turn the call the CEO John Connor John .
Thank you Cameron simulations plus benefited from continued strong execution on our objectives and unanticipated client driven accelerated timing on several projects to deliver growth that exceeded our plan targets in the first quarter, the 25% topline growth and 11 cents per share earning.
Sends a strong start to our fiscal year.
As most of you know over the last six quarters, we've increased our investment in several key initiatives, most notably sales and marketing with the goal of increasing our historical growth rate of 10% to 15% to a range of 15% to 20%.
These investments yielded encouraging results as we navigated fiscal 29 team for the full year 2019, we delivered 15% growth and in the fourth quarter our growth rate was 20%.
We improved on that further in the first quarter fiscal 2020, delivering 25% revenue growth. This result was largely due to the acceleration of several projects at our North Carolina operation, resulting in higher than expected revenue in the first quarter.
While we're not anticipating growth to maintain these levels throughout fiscal 2020. These results validate our expectations of 15% to 20% growth for the full year.
Our increased revenue growth has been driven by both our software and consulting businesses software revenues grew 12% during the first quarter with consulting growth for the quarter at 40%.
Gross margin gross margins remained strong at 72% slightly up on gross margins of 71% and 72% in the first and fourth quarters of fiscal 2019, respectively.
This was achieved despite richer mix of lower margin consulting revenues for the quarter. In addition to higher than usual pass through CRL revenues, and our RTP Division, which Gary will very low margins.
This result supports our belief that we can maintain or improve overall gross margin. Despite changes in revenue mix and the cost of personnel through price management and operational efficiencies.
Demand remains strong our across our software products and consulting services.
Through our prior acquisitions of cognition and delivery system as well as our more recent focus on recruiting more senior scientific consultants. We have built a more comprehensive array of expertise that is helping us capture additional consulting opportunities beyond our historical competencies.
It is appropriate this quarter to highlight the progress made in our in our RTP Division.
Its year over year revenue growth for the quarter was 88% an incredible achievement for a division of only 17 staff.
When we acquired delay some in fiscal 2018 its product portfolio consisted of the product delay some quantitative systems toxicology model for assessment of drug drug induced liver injury.
And NAFL diesel and non alcoholic fatty liver disease disease model.
From that starting point, we have leveraged our quantitative systems pharmacology expertise with internal Graham based in pharmaceutical company funding to significantly expand our therapeutic coverage and sources of revenue from this group.
Today model building efforts and revenue are sourced Additionally from reynosa.
Model to assess drug induced kidney injury.
FSM a model for idiopathic pulmonary fibrosis and ready to serve a model for acute radiation syndrome.
This expansion has taken us into new therapeutic areas and new customers expanding the market ACA opportunity for Qs be expertise.
As the models mature software revenues from licensing the models will supplement the consulting service revenues.
And more therapeutic expansion opportunities are on the horizon.
Our ongoing investments specifically in sales and marketing have increased our SGN a spending in absolute dollars.
Due to the higher revenue growth SGN, a expenses as a percentage of revenue declined in the first quarter versus the fourth quarter fiscal 2019 and was up 1% from the first quarter fiscal 2019.
We continue to forecast full year EPS DNA expenses at approximately 35% of total revenue.
SGN a expense as a percentage of revenues will fluctuate quarterly based upon the seasonality of our revenues over time, we anticipate these expenses moving back towards our historical percentage of revenue at about 31% to 32% of revenue.
Turning to our first quarter results by Division.
In our Lancaster Division overall revenue was up 13% for the quarter.
Software revenue grew 15% for the quarter versus last year.
Consulting revenues were slightly down 2% for the quarter versus last year.
With regard to Lancasters detailed metrics, 69% of our revenue was from renewals, 12% from new licenses and 19% from consulting a.
Our renewal rates were 85% based on accounts and 98% based upon fees.
Our licensed units of to 35 were up 12% over year over year.
We added 16, new commercial companies and 22 nonprofit groups. We currently have projects with 26 companies and nine funded collaborations.
Since the beginning of the fiscal year.
We have announced five significant funded collaborations.
These projects expand the functionality of our software offerings and further differentiate us within the industry.
First we entered into a new collaboration agreement with Bayer to advance the ADMET predictor machine learning software for use with integrated drug discovery workflows.
Collaboratively, we will develop improved structure and to tolmar handling capabilities that will support data integrity across the different Bayer discovery platforms.
Second we entered into a new funded collaboration with a large pharmaceutical company to enhance the PK plus software.
This collaboration followed a rigorous process, where the pharmaceutical partner evaluated similar simulations plus and several competitors ultimately selecting PK plus as the pharmacokinetics toxic kinetics modeling program to support the internal data platform that connects their global teams.
Third we entered into a new funded collaboration with a large pharmaceutical company to modify the mechanistic oral absorption model in gastroplus to support gastrointestinal disease research.
Fourth we entered into a new funded collaboration with the clinical stage biotech partner to develop an intra articular delivery model in Gastroplus.
And finally, we entered a new funded collaboration agreement with a large pharmaceutical partner to develop the virtual bio equivalents trial Stemulator module for Gastroplus.
These collaborations continue our history of leveraging client input and funding to enhance and reduce the overall R&D costs associated with maintaining our industry leading software products.
Despite the despite the flat service revenues in the division in the first quarter collaboration closures year to date provide confidence in achieving our full year revenue targets.
We ended the quarter with 41 full time employees at our Lancaster Division up one from 40 in the prior quarter and up four from 37 last year.
In Buffalo, we achieved 16% revenue growth for the quarter.
As a reminder growth at the Buffalo Division has increased from 8% in fiscal 2018% to 19% in fiscal 2019, and we have started fiscal 2020 with a solid quarter.
Demand remains high for this type of PK PD consulting services that we offer in the marketplace.
In support of our growth expectations for the fiscal year, we had a successful recruiting quarter, adding five new employees to the consulting staff a net a four with one attrition.
While associated recruiting and onboarding costs impacted the divisions profitability. This quarter. We believe we are well positioned to meet our client demand in growth expectations for the fiscal year.
We ended the quarter with 51 full time employees at our Buffalo Division up from 49 in the prior quarter and up from 42 last year.
Our RTP division delivered that 88% revenue growth for the quarter.
As I mentioned earlier this division benefited from two significant projects or accelerated at the customers request to meet development and regulatory needs.
The team at Delhi, some deserves special credit for going above and beyond this quarter.
As I mentioned in our Corp. fourth quarter call. This division is operating at full capacity in support of several large collaborations with four new qsb platforms in various disease areas and in addition to other client consulting projects.
The request to pull forward two projects required additional hours and tremendous effort.
This effort plus the comparison to a relatively modest year ago quarter drove the 80%, 88% revenue growth in the quarter and was a key factor in our consolidated 25% growth overall.
While we cannot expect continued growth at these levels. We do expect continued significant growth and to that end. We've recruited two additional to the team who are starting vessel next month and continue to seek additional reinforcements for the group and North Carolina job well done RTP.
Let me now turn the call over to John to review the detailed financial results John .
All right appreciate it's Sean.
Our consolidated net revenues for the first quarter fiscal year 20 were up as Sean said, 25% or 24.8.
Or 1.9 million to $9.4 million compared to 7.5 in the prior year period.
By Division Lancaster's revenues were up 13% to 4.9 million Buffalo's revenues were up 16% to 2.4, and RTP revenues were up 88% to $2.1 million over the last period of year on a year ago.
Gross profit increased 26.7% to 6.8 million, representing a 71.9% margin in the first quarter fiscal year 20, compared to 5.3 years 70.8 gross margin in the same quarter last year.
Cost of revenues have increased by approximately 443000 compared to the prior year due to labor related costs of approximately 399000 and direct contract expenses of 81000 for testing deliveries and RTP.
As a percentage of revenues cost of revenues were down slightly.
To 28.1% of total revenues compared to 29.2 of total revenues in the first quarter fiscal year 19.
SGN, a expenses were $3.5 million or 37.4% of revenue in the first quarter. This year, an increase of approximately 794000 or 29.2% compared to $2.7 million or 336.1% of revenue in the first quarter of nine.
Team.
The increase in SGN a expense was primarily the result of increases in salary and wages and labor related costs was the company has grown headcount to support revenue growth. In addition to labor we saw an increase in year over year cost and professional fees insurance expenses and directors fees as the board has now made up of.
All paid Nonmanagement members.
Research and development costs for the most recent fiscal quarter were just over $1 million of this total approximately 526 was expensed and 507 was capitalized.
Overall, we increased our R&D spend in the first quarter by fiscal year 20 by 49000 compared to the prior year period.
The expense portion of 526 in the first quarter 20 was roughly flat compared to 530 in the year ago quarter. However, as a percentage of revenue R&D decreased to 5.6%.
From 7% in the first COVID-19.
Income from operations for the first quarter of the year was 2.7 million up 632000, or 30.3% compared to 2.1 billion than year ago quarter.
Our provision for income taxes for the first quarter of 20 was 675000 effective rates of 24.7% compared to 486, an effective rate of 24.
Percent in the prior year.
We expect our tax rate should probably be in the 23% to 25% range for this fiscal year.
Net income increased by 522000 or 34% to 2.1 million. The most recent quarter compared to a million five a year ago.
On a per share basis net income was 11 cents per diluted share in the first quarter compared to 9% for prior year.
If you take off the rounding.
EPS was up 2.7 cents from the prior year as a percentage.
Fully diluted EPS was just up over 30%.
EBITDA was 3.4 million this quarter.
Up 25% compared to 2.8 in the year ago quarter.
Turning to the next slide.
This slide shows our revenue on a quarterly basis from fiscal year 2016, So the first quarter of 20.
Illustrating both historical quarterly growth patterns in the seasonality of the business.
Seasonality can be best seen using the 2019 purple bars, our third quarter is typically our strongest quarter with the decrease in revenue in the fourth quarter that coincides with slowdown our clients purchasing in the summer months.
Our first quarter. This year again, followed the upward trend and revenues were strong enough to approximate third quarter of 19.
Our historically highest quarter for revenue.
The next slides present income by quarter, which illustrates a consistent track record of increases both year over year and sequentially through the first and third quarters with the fourth quarter is typically the lightest in the year.
As you can see the powders for quarterly revenue in quarterly income from operations have largely held true for a number of years.
On slide 11, we see a similar pattern of net income with a third quarter typically being the strongest we've isolated the impact of a 1.5 million dollar deferred tax benefit in the second quarter fiscal year 18, since it tends to skew the presentation without highlighting the difference.
Next slide.
Diluted earnings per share follows the same pattern of tracks with net income as I mentioned earlier fiscal 21st quarter diluted earnings per share were 11 cents.
Reported two cents over the first quarter this fiscal year.
And then turning to EBITDA on slide 13, again, as Ics becton with seasonal patterns hold true with overall trends moving upward the typical seasonal seasonality between quarters.
Next slide.
Illustrates our revenue by regions, where global business with the majority of our revenues in the western hemisphere or the Americas.
Approximately 67% were in North America and 68.
Percent overall in the Americas Asia, and Europe , each represents 16% total revenue for the quarter.
Turning to slide next slide.
This slide illustrates the strength of our cash position with the quarterly view of our cash balance.
Which continues to increase even in light of cash outflows for dividends and acquisition. So over the last five years.
Beginning with the first quarter fiscal year 2017 on the far left the blue bars at the bottom illustrate our consistent dividend payout approximately 900000 per fiscal quarter through fiscal 17, the beginning of 18, our board increase the dividend payment to six cents a share, thereby returning them.
Approximately one to 1.1 million in cash to our shareholders quarterly through the present quarters.
Today, we announced the board has again continued the six cents quarterly dividends in the next dividend payment date will be February threerd.
Continuing with the chart the red bars represent cash used for acquisitions cash flows for operations have allowed us to investor for future growth through acquisitions with execs with excess cash while still maintaining healthy balance sheet our.
Our reinvestment through acquisitions totaled nearly 15 million over the last four to five fiscal years, while also returning more than $20 million to our shareholders through consistent cash dividend payments without taking on any borrowed Deb.
The next slide.
Our cash balance.
End of November was 12.6 million, which is up 10% compared to our fiscal year ends a 31 like team.
Our balance sheet is clearly stronger today than a year ago as a direct result of our increased earnings power cash flow generation and prudent allocation of capital.
I'll now turn the call back to Sean.
Thank you John in summary, this was a great start to the new fiscal year building on the accelerated growth we delivered in fiscal 2000 2019.
Demand for solution remains strong and we are adding to our team to meet this demand. In addition, we have opportunities outside the United States to further accelerate our profitable growth.
Look forward to reporting on our further progress in the coming months in with that I'd like to turn it over and take any questions that you might have.
Thank you John once again, if you'd like to ask the question you. Your telephone please use the Henry's an icon on your control panel and be sure to enter the unique or your pin. Please hold on one second wide open for questions.
As we pulled in the questions I'll just go through some of the written questions. The first one is.
Can you explain in nature of the increase of interest income ex increased interest rates or different cash management products.
John I'll, let you take that one.
I am.
I was muted there.
The interest income has come up.
As come up over the last years, we've held a little bit more and balances.
We've taken a fairly conservative approach.
On investments at this point.
And holding cash for potential potential uses that would help to company.
At this point.
John any other comments.
None in this regard no okay.
The next question will be from.
Matt Hewitt Craig Hallum.
This question will be life.
Congratulations.
I am can you guys Jeremy.
Yes, Matt yes, okay. Congratulations on a strong start to the year a couple of questions from me first of all.
The accelerated consulting deals.
Maybe walk us through holiday those came about it are you essentially pulling those forward from Q2 or is that a customer that came and said hey, we need this does this quarter.
Maybe just a little explanation there.
Sure.
Both our gave were existing clients and and projects that.
We are anticipated to run through multiple core quarters going forward in each that instance declines came to us and.
We are limited in terms of our disclosure capability, but driven by regulatory and internal.
Our development plans within their organizations.
Requested accelerated delivery of the results of the efforts that.
We had signed up for and so.
In a situation in which.
We also do unto push offer deadlines for the project. So we were working on the team doubled up if you will.
And brought forward work effort that had been planned over multiple months going forward into a short window of time in the.
Basically October November timeframe, and really stood up and delivers results and.
Supportive of the client I mean, it speaks I think.
You mean in both directions.
The importance of the work that we do and the critical nature that input at that it provides the clients either in their own internal decision, making or in the face of the response to the FDA in terms of queries and in in interactions.
And also a inward very proud of the group in terms of stepping up and recognizing.
The importance to the client.
And doing what was necessary in order to fulfill the needs there I'm very strong effort effort by the team.
That's great. Thank you and then.
You had a strong quarter of hiring.
Adding people at the number of the the facilities I'm just curious how much do you have left to go yet this year from a hiring perspective.
I'd say amounted to its an ongoing process.
For our expectations are to continue to grow.
Consistent way going forward recruiting is is in everyday every week every month every quarter endeavor, but certainly this quarter.
Specially in the cognition group out of Buffalo, we were able to.
Take advantages.
Opportunity in terms of there being candidates good candidates out there that at our needs.
And.
Demand and.
So.
As we look out over the next couple of quarters.
A it's we're not dependent upon at that level of hiring to support our near term needs at the same time should candidates come forth that that are that are keepers.
We will not hesitate to pursue them balancing balancing our capacity against the work effort that's in front of us but.
We have over $6 million in backlog of projects in that division and so.
Given the ramp up times it take it takes to bringing a consultant onboard and get them productive. We're certainly in a position where we've got to client work effort available to assign new people too.
Got it Origo. Good luck in his you continue to search for a more our consultants I guess the last question for me.
On the Rina, Sam and maybe how is that our product progressing and when do you anticipate a launch thank you.
Other integrating assessments is there we're seeing both consulting revenues consulting project opportunities as well as the licensing opportunities in that space. So it's it's starting to kick off kickoff now.
That's great. Thank you congratulations again on the strong start to the year. Thanks, Rob.
Okay.
Thank you. The next question on the written questions is from Howard Halpern.
Tablets, congratulations great quarter can you quantify the amount of accelerated revenue per minute to clients in the quarter and was that expected to occur in second quarter 2020.
Scoured the as a as I mentioned before the projects were in place and anticipated to flow over over multiple quarters.
So some of that is drawing it ends from from the second quarter.
Don't want to get into disclosing specific client to revenue streams, we without these two accelerations.
We would add a good quarter it would've been in that 15% to 20% range not up to the 25% range. So that gives you a little bit of the feel.
We are scrambling and with the backlog that we have.
It doesn't mean that what came forward out of the second quarter ended the first quarter can't be.
Phil Dan and replaced in the second quarter, hence our longer term expectations of.
The year being in at 15% to 20% is still our expectation.
Thank you Sean a follow up question from Howard does the first quarter, Justin 20 results validate your prior investments to drive revenue growth, while also improving and maintaining the gross margin as well.
However, consulting services when demand.
Yes, if I understand the question I think you know.
First quarter results accelerated projects aside for the moment, we continue the.
Passive we initiated and start to come to fruition in 2019 in stepping up the revenue growth and.
I believe that has.
Been driven by our investments in several initiatives.
Both on the software side as well as the consulting side terms, the sales and marketing tweaks and changes in investments we're making.
Hiring seeing senior scientists that have a little bit more business development DNA.
In their capability.
And focusing the organization in terms of these goals.
And so.
We.
Our seeing that continue and started the year.
With great results in that regard.
Thank you Sean and two other follow ups from Howard what is the significance of your collaboration agreement with their AG.
I think theres.
Several sort of the angles on on the collaboration there one.
Let me predictor in the data mining.
And our machine learning I should say capabilities in that product are recognized.
By the industry in this case, yes bear.
In terms of being there tool of choice.
In the discovery applications and.
Secondly, there collaboration with us too.
Add this utility to the product further embeds our software in a very significant client.
You see the renewal rates at 98% this quarter for our software business is very indicative.
98% on fees is very indicative of the.
Stickiness of of our software application in the industry once it gets into a client's hands.
And this is this this is the way what are the ways in which that sticking. This comes comes about.
Thank you Sean and then the final question is how are your efforts in Europe progressing and we announced we had at least three or four employees that are based they are starting in the fourth quarter call.
Going to expand upon that that growth as far as one of the areas that we've discussed as far as an opportunity for future growth going forward.
Yeah.
No no no fifth.
Employee in Europe to announced this quarter, we have we remain at the four.
That we entered the fiscal year with obviously those.
The consultants are engaging both in terms of project work.
As well as integrating themselves in terms of the community in supporting the conference attendance and relationship build with the with clients there in Europe .
I still believe that this is.
I strongly believe this was a.
A tremendous opportunity for us down the road that is yet to be paying dividends, but will and.
In the near term.
Well. Thank you everyone. It appears as no further questions at this point. This concludes today's conference call and Webinars you Miss any part of today's presentation. A replay will be available on our website simulation debt plus desktop. Thanks for the speaking with the second quarter.
Thanks, everyone.