Simulations Plus, Inc. — Q3 FY2023 Form 10-Q
Reporting period: Quarter and nine months ended May 31, 2023; fiscal year ends August 31. Unaudited consolidated results. The company develops drug discovery and development modeling software and provides scientific consulting services.
Key financial results
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Revenue | $16.2M | $15.0M | $43.9M | $42.2M |
| Gross profit / margin | $13.3M / 82% | $12.4M / 83% | $35.7M / 81% | $34.0M / 81% |
| Operating income | $4.1M | $4.9M | $9.0M | $14.2M |
| Net income | $4.0M | $4.1M | $9.4M | $11.5M |
| Diluted EPS | $0.20 | $0.20 | $0.46 | $0.56 |
| Operating cash flow | — | — | $18.8M | $10.0M |
Q3 revenue rose 9% year over year, led by software growth of 10% and services growth of 5%. Nine-month revenue increased 4%: services grew 9%, while software grew 2%. Q3 operating income declined 17% and net income declined 2%; for the nine months, operating income fell 37% and net income fell 18% despite higher revenue.
Q3 operating expenses increased 23% to $9.2M, including SG&A growth of 21% and R&D growth of 44%. Nine-month operating expenses rose 35% to $26.7M; SG&A increased 34%, and R&D increased 41%. Management attributed the increases primarily to higher headcount and compensation, product development, and acquisition costs. Higher interest income supported other income: $2.6M for the nine months versus nominal income in the prior-year period.
Cash, liquidity, and capital allocation
- At May 31, 2023, cash and cash equivalents were $55.1M and short-term investments were $67.2M; working capital was $128.3M. Current assets were 15.2 times current liabilities.
- Operating cash flow was $18.8M for the nine months. Investing cash flow was positive $6.8M, reflecting net investment maturities; financing cash flow was negative $22.1M, principally due to $20.0M of repurchases and $3.6M of dividends.
- The balance sheet lists no borrowings; liabilities were $9.7M, including lease liabilities. The filing cites a 0.1 debt-to-equity ratio, but does not clearly define the debt measure.
- The $20M accelerated share repurchase was completed in May, retiring 492,041 shares at an average price of approximately $40.65. Up to $30M remained under the $50M authorization; further repurchases are discretionary. Quarterly dividends declared during the first nine months totaled $0.18 per share.
Material developments, outlook, and risks
- Subsequent acquisition: On June 16, 2023, the company acquired Immunetrics, a quantitative systems pharmacology modeling business. Cash paid at closing was approximately $13.7M, plus a $0.25M expense fund; $1.8M was held back and up to $8.0M in earnouts may be payable based on 2023–2024 revenue milestones. The acquired company’s results are excluded from the reported period and will be consolidated in future periods.
- Management said existing capital and anticipated operating cash flows should meet foreseeable working-capital and capital-expenditure needs, including possible completion of the repurchase authorization. It also noted that acquisitions could require substantial cash or financing. No specific earnings or revenue guidance was provided.
- Management cited customer delays, program holds or cancellations, and industry consolidation as possible revenue risks; it also highlighted competition, product-development and market-acceptance uncertainty, economic and recession concerns, inflation and interest-rate uncertainty, and banking-system risks. The company stated it did not hold cash at the failed regional banks discussed in the filing.
- Investments were classified as held-to-maturity; $150K of gross unrealized losses at May 31 were attributed primarily to higher interest rates, and no credit-loss allowance was recorded. The company reported no pending or threatened litigation and no impairment charges. Disclosure controls were judged effective.
Important facts for investors to verify
- Whether revenue growth and demand persist, particularly given software renewal timing and mixed service-line performance.
- Whether expense growth moderates and operating profitability recovers after the significant nine-month decline.
- Immunetrics’ integration costs, post-closing adjustments, performance against earnout milestones, and contribution to future results.
- Cash and investment balances, investment maturities and credit quality, and the amount and timing of any additional share repurchases.
- Potential effects of customer delays, economic conditions, competition, and the company’s product-development investments.