Simulations Plus ((SLP)) has held its Q2 earnings call. Read on for the main highlights of the call.
The recent earnings call for Simulations Plus revealed a strong sentiment of growth and optimism, despite some challenges. The company showcased impressive revenue growth and success in its software segment, while also reaffirming its guidance for fiscal year 2025. However, the call also highlighted some hurdles, including project initiation delays, decreased gross margins, and lower net income and EPS.
Significant Revenue Growth
Simulations Plus reported a notable 23% year-over-year increase in total revenue, reaching $22.4 million. This growth includes a 5% organic increase, excluding contributions from new business units. This demonstrates the company’s ability to expand its revenue base significantly.
Strong Software Segment Performance
The software segment of Simulations Plus experienced a 16% growth in revenue. This was bolstered by strong renewal rates and successful new logo sales, despite facing funding challenges. The QSP business unit, in particular, saw an 89% surge in revenue, driven by a model license for atopic dermatitis.
Service Segment Success
The services segment also performed well, with a 34% increase in revenue. This was led by strong performances in the CPP and MC business units. The company ended the quarter with a backlog of $20.4 million, marking an 18% increase from the previous quarter.
Positive Financial Metrics
Simulations Plus reported an adjusted diluted EPS of $0.31 and an adjusted EBITDA of $6.6 million, which represents 29% of revenue. The company remains financially strong, with $21.4 million in cash and no debt.
Challenges in Project Initiation
Despite the positive metrics, the company faced challenges with project initiation. Clients have been slow to start new projects, which has delayed the realization of service revenue to the second half of the fiscal year.
Decreased Gross Margin
The company’s total gross margin for the quarter fell to 59%, down from 72% in the previous year. The software gross margin decreased from 88% to 81%, and the services gross margin dropped from 44% to 25%.
Lower Net Income and EPS
Net income for the quarter was $3.1 million, or 14% of revenue, down from $4 million, or 22% of revenue, last year. Diluted EPS decreased to $0.15 from $0.20 in the previous year.
Decline in PBPK Services Revenue
The PBPK services revenue saw a 23% decline, reflecting the cautious pace of project initiation. This indicates a need for the company to address the slow start of projects to improve this segment’s performance.
Reaffirmed Fiscal Year Guidance
Looking ahead, Simulations Plus reaffirmed its fiscal 2025 guidance, projecting total revenue between $90 million and $93 million. The company expects the ALI and MC business units to contribute $15 million to $18 million. The adjusted EBITDA margin is forecasted to be between 31% and 33%, with adjusted diluted EPS projected to range from $1.07 to $1.20.
In summary, the earnings call for Simulations Plus painted a picture of robust growth and strategic success, particularly in the software segment. While challenges such as project initiation delays and decreased margins were noted, the company’s reaffirmed guidance for fiscal 2025 reflects a confident outlook. Investors and stakeholders can look forward to continued growth and financial stability as the company navigates its future.