Business context and reporting period
Simulations Plus, Inc. develops pharmaceutical modeling and simulation software and provides drug-development consulting. This Form 10-K covers the fiscal year ended August 31, 2020; its fourth quarter was June–August 2020. The company acquired French pharmacometrics software and consulting provider Lixoft on April 1, 2020.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $41.59 million | $33.97 million |
| Gross profit / margin | $30.94 million / 74.4% | $24.94 million / 73.4% |
| Operating income / margin | $11.61 million / 27.9% | $10.65 million / 31.4% |
| Net income / diluted EPS | $9.33 million / $0.50 | $8.58 million / $0.48 |
| Operating cash flow | $10.91 million | $11.64 million |
Fiscal Q4 revenue was $9.54 million, gross profit $6.87 million and net income $2.19 million, compared with $8.03 million, $5.74 million and $2.06 million, respectively, in Q4 FY2019. Cash and cash equivalents were $49.21 million and short-term investments $66.80 million at year-end. Working capital was $123.59 million; total liabilities were $12.39 million. The company had no balance drawn on its $3.5 million revolving credit facility. It paid $4.25 million in dividends during FY2020, or $0.24 per share.
Material changes versus the prior comparable period
- Revenue rose 22.4%; consulting revenue increased 29.1% and software and related revenue increased 16.8%. Lixoft contributed $1.58 million after its acquisition. The company reported growth across its California, Cognigen and DILIsym operations.
- Gross margin improved by 1.0 percentage point, while operating margin declined 3.5 points as operating expenses grew faster than revenue. SG&A rose 38.7%, including approximately $1.42 million of Lixoft acquisition costs and higher staffing-related costs.
- Net income increased 8.7%, and diluted EPS increased 4.2%. The August 2020 public offering issued 2,090,909 shares at $55 per share, generating approximately $107.7 million in net proceeds.
- Operating cash flow decreased to $10.91 million from $11.64 million. Investing cash use increased substantially, including $67.25 million of short-term investment purchases and acquisition-related cash outlays.
Outlook, commentary and risks
Management described FY2020 as a record year and attributed growth to wider adoption of modeling and simulation, regulatory support for these methods, and demand for consulting expertise. It plans to pursue product collaborations, expand sales and scientific staffing and infrastructure, and seek complementary acquisitions. The filing provides no specific revenue or earnings guidance.
Management said renewals and services tied mainly to pre-pandemic contracts were not materially affected through FY2020, but new software licenses and service contracts were negatively affected as customers redirected attention toward COVID-19. The duration and future effects of the pandemic remain uncertain. Other disclosed risks include customer and pharmaceutical-industry consolidation, competition and pricing pressure, contract delays or cancellations, retaining specialized staff, cybersecurity and hosting disruptions, foreign-currency exposure, acquisition integration and potential impairment of goodwill or intangible assets. The company reported no pending legal proceedings and no goodwill or long-lived-asset impairment in the periods presented.
Lixoft consideration includes a holdback and revenue-based earn-outs of up to $5.5 million; $4.73 million of contingent consideration was recorded at August 31, 2020. The company also reported $6.06 million of total acquisition-related contracts payable. Management believes existing capital and expected operating cash flows will meet foreseeable needs. Its quarterly $0.06 dividend remains subject to board approval.
Important facts for investors to verify
- Whether post-acquisition Lixoft revenue growth and integration support the recorded goodwill, intangible assets and earn-out assumptions.
- Whether operating expenses, especially SG&A, moderate relative to revenue growth and restore operating-margin progress.
- How new bookings, consulting demand and renewals develop as customer activity and COVID-19 conditions change.
- Cash deployment plans for the offering proceeds, acquisition obligations and investments, and whether the dividend continues.
- Customer concentration, receivables collection, foreign-exchange exposure and the security and continuity of hosted services.