Renee Bouche - IR Walt Woltosz - Chairman and CEO Ted Grasela - President John Kneisel - CFO John DiBella - VP, Marketing and Sales.

Analysts:.

Good afternoon. It is Thursday, July 14, 2016 and on behalf of Simulations Plus, I welcome all of you to our Third Quarter Fiscal Year 2016 Financial Results Conference Call and Webinar.

Presenting this afternoon will be Chairman and CEO, Walt Woltosz; followed by Chief Financial Officer, John Kneisel, Vice President of Marketing and Sales, John DiBella and Company President, Ted Grasela. An opportunity to ask questions will follow today's presentation.

[Operator Instructions] This call is being recorded for playback at our website www.simulaitons-plus.com. Before we get started with the presentation, we’ll begin with the Safe Harbor statements.

With the exception of historical information, the matters discussed in this 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.

Factors that could cause or contribute to such differences include, but are not limited to, continuing demand for the company's products, competitive factors, the company's ability to finance future growth, the company's ability to produce and market new products in a timely fashion, the company's ability to continue to attract and retain skilled personnel and the company's ability to sustain or improve current levels of productivity.

Further information on the company's risk factors is contained in the company's quarterly and annual reports as filed with the Securities and Exchange Commission. Now it’s my pleasure to introduce you to Walt Woltosz, Chairman and CEO of Simulations Plus..

Thanks, Renee, and thank you everyone who is attending our third quarter earnings conference call. The third quarter highlights are shown here, the software renewal rates 88% on number of accounts and 96% based on the fees or revenues that’s coming out.

The reason there is a difference is the smaller accounts are academic or government accounts and typically the academic accounts are the ones that have the largest churn rate of students may be using one of our software programs in their research and when they graduate and move on no one else in the department who is using the software and we don’t get a renewal.

But those are such small fees that it’s not a big impact on the fees as you can see. We have added 16 new software clients, product development efforts. A lot of activity going on, particularly our PK Plus where we are expecting to release the beta test version actually today.

Finally, expected to have that for a number of months now, but we are finally there, it’s been a lot of work, tremendous effort by a very large group of folks who has been working on those in both Buffalo and Lancaster divisions.

This is a new software product that will be used for non-compartmental analysis and compartmental analysis and specifically for regulatory submissions. We believe this has the potential to become a significant contributor to revenues and earnings. We are also finalizing the next release of our flagship GastroPlus software version 9.5.

This will add intramuscular dosing, the ability to inject into the muscles and also an enhanced ocular dosing model where we have two FDA research collaboration agreements that are funded by the FDA that are helping in both of these areas. This will also include antibody drug conjugate.

This is where an antibody serves as a carrier for a small drug molecule and so the antibody has very specific targeting and can release the small drug molecule at exactly the place that you’d like to have it released for a therapeutic effect.

We are also adding some new animal physiologies for our additional dosing routes, additional dosing routes means things like dosing through the skin or the oculary dosing or inhaled dosing, nasal and pulmonary dosing. We are also finalizing version 8.0 of ADMET Predictor.

This is a really large overhaul, extensive overhaul of the user interface and [some recode] [ph] refactoring and a lot of quality assurance testing that’s been going on.

The new version has a fresh new look, very modern look, very facile capabilities for examining the results that you get in and we have greater integration with our MedChem Studio product, a product designed for medicinal and computation tools. We did release version 5.0 of DDDPlus.

This is a program we’ve had for over ten years now I think and simulates how a drug – dosage forms dissolve in laboratory experiments in vitro experiments. We’ve added several new dosage forums this integration of the tablet is now modeled.

We’ve added biorelevant solubilities into the program that simulates solubilities in fluids that are simulating gastric fluid and intestinal fluid in both fasted and fed state. And we have added a tablet compression model.

In addition to software, our consulting services continue to grow, and we announced a $4.7 million, 5-year contract during the quarter that Ted will talk about little bit more. And I mentioned that we have two funded collaborations with the FDA. We’ve completed the first year for the ocular dosing and the contract was renewed for the second year.

We have now nearly completed the second year and expect to have renewal for the third year. We have met all the milestones that we’ve been targeting in specifics aims.

We have established a consortium of companies who have worked with us with the data and their scientists and it’s important because the global ophthalmic drugs market was valued at about $16 billion in 2012 and is expected to grow at almost $22 billion in 2018 and as the population ages, the prevalence of eye disorder is increasing.

So, we will see things like diabetic retinopathy and macular degeneration becoming more prevalent as the population ages. Now we also began our first year of an up to three year also $200,000 per year collaboration looking at long-acting injectable microspheres.

So these dosage forms where a drug is embedded in very small micro spheres made up of polymer that slowly degrades and releases the drug over a long period of time, perhaps even weeks or months. We did form a consortium again of industry partners, FDA scientists and our own staff.

We added the intramuscular dosing just now at our beta version of GastroPlus that will eventually become version 9.5. And we have enhanced our DDDPlus software so that we can simulate the in vitro dissolution and release for the new polymer microsphere, is a very different type of experiment than in a typical tablet dissolution.

During the quarter we also responded to two new requests from the FDA. Both of them for $250,000 per year for up to two years and both of them aligned very, very strongly with our GastroPlus flagship product.

The first one to combine PBPK model [indiscernible] GastroPlus is known for with the population statistical method that our Buffalo division has been known for and used in the past in a program called NONMEM is the most widely used program.

In the past, the modeling in Phase 2 and Phase 3 trial beta analysis has been relatively small statistical model that would run quickly because even with these small statistical models NONMEM runs can take days and sometimes even up to two weeks.

And so, to combine those statistical methods that can take a long time to sync the model with a very detailed mechanistic models and PBPK model means that we have to take a different approach.

So we will be looking at parallel computing where we can run simulations in parallel on many different CPUs so that – if you have to run a 100 simulations on one CPU, it takes you 100 times the length of the stimulation.

But if you can run it on a 100 CPUs then we get all 100 of them in the time that it will take you run one, as a rough approximation. We do believe our proposal is very strong.

The synergy between Lancaster and Buffalo is really – this was one of the reasons that we wanted to do the merger a couple of years ago between Simulations Plus and Cognigen, our Buffalo division. The proposal effort really demonstrated the excellent synergy and cooperation between the two teams with two different types of expertise.

In both of these requests, the FDA says up to two contracts will be awarded. So that just improves everyone’s chances including us. The second one is looking at what’s called super saturating formulation.

Drugs have a certain solubility and solubility changes depending on what kind of environments they are in, particularly for drugs that can be ionized and this looks at drugs that may be very soluble at the low PH in the stomach and then may become super saturated as the drug moves out into the small intestine, and when it’s super saturated it sometimes will tend to precipitate quickly, sometimes not so quickly, very complex set of mechanisms that go on to drive that.

The FDA now wants to support development of software to better predict that. We already incorporate some of the modeling that they have requested. So we feel like we have a little bit of leg up on that and again, we think this proposal is also very strong.

Both of these, we expect award announcements to be sometime before September and the start date is supposed to be in September. We also continuing to look at opportunities outside of pharmaceutical.

We’ve had this both of these efforts on backburner, because the team working on PKPlus is most – everyone on that team would be contributing to these two efforts. And so, the PKPlus now reaching beta test and hopefully released in the coming weeks. We should have a little bit more time to pay attention to these two areas.

We did have a recent contact with the air force last month that identified another potential application for our machine learning technology.

So overview, we are a major provider of software and consulting services for pharma R&D and from the earliest drug discovery and we’ll talk about the chemist drawing the molecule on the [Indiscernible] or using a computed program in his executive desk through pre-clinical developments, laboratory and animals testing, through first-in human trials Phase 2 and Phase 3 clinical trial data analysis, and then beyond patent life to supporting generic companies.

We’ve been enhancing every existing software products then finalizing the PKPlus an exciting new product that we expect to be a significant player. We are developing some new applications in aerospace. Again on temporary hold. And then financially, third quarter revenue is up 1.2% and income up 3.1%.

This may seem like small numbers, but last year’s third quarter was an incredibly strong third quarter because of a number of orders that slipped into the third quarter from other quarters.

So we were trying to beat something that was really a substantial record quarter and we did, maybe not by much but then if you look at the nine month numbers, you can see overall that we are up very, very nicely. Third quarter earnings per share up 2.1%. But then going to nine months, revenues up almost 10%.

Net income up over 24% and diluted earnings per share up over 23% for the nine months. So continued growth. We’ve had more than eight years of profitable trend and I think if we took out one quarter some years back, where our former subsidiary Words Plus had a loss that offset slightly the gain that we had on the Simulations Plus side.

That would be more like 10 or 12 years of continuous profitability. Our successful strategic acquisition two years ago of Cognigen has worked out very nicely fantastic cooperation between the two teams. Our customer base increased in the third quarter by 16 new customers.

Renewal rates based on fees 96% and we expect to continue the compounded growth we’ve been experiencing for many years. Our third quarter earnings per share was then up 2.1% and year-to-date 23% and cash is strong.

About $8.9 million in cash as of yesterday or day before and we’ve distributed over $15 million to our shareholders in dividend since 2012. We will continue to pay our dividend of $0.05 per quarter per share. Of course that’s always up to the Board of Directors to decide which quarter.

So, another potential dividend coming up next month in August and we’ll see if the board decides to distribute that. So we’ll turn over now to John Kneisel, our Chief Financial Officer..

All right, thanks, Walt. We are going to go over the three months numbers first and then we will cover the year-to-date numbers. So the first slide here, where our consolidated revenues, as Walt said were up 1.2% and $70,000 in the third quarter.

These, $123,000 of this increase comes from our Lancaster division, and Buffalo showed a slight decrease of about $53,000 for the quarter. As Buffalo revenues were impacted by a combination of cancellations of consulting contracts that are caused by drug failures and in trials as well as some delayed trials by the sponsors.

Our gross profit remained nearly constant increasing about $8,000 for the quarter. The consolidated gross profit as a percentage still remained constant at just over 80% for this quarter. A very healthy, very healthy gross profit number.

And looking at SG&A expenses, they increased $74,000, most of this increase came from advertising and professional fees for tax and compliance related issues during the period. There really weren’t many other major increases. We did see a little bit of a decrease in our commissionable revenues, so commissions were down a bit during the quarter.

Moving to research and development, that expense really was unchanged from last year. Our R&D spend was up slightly about $23,000 to $25,000 and we continue to put money into research and adding to our end as well as adding to our capitalized software as we improve our products. Income from operations was down slightly of $66,000 for the quarter.

This was offset a little bit with our other income coming up about $43,000 as with the dollar strengthened against the Yen and we made $43,000 in comparison to the prior year.

Overall, our net income increased $57,000 for the period with a slight decrease in operating income that changed - shifted because of income taxes which we saw effective tax increase or effective tax rate decrease of about 2.9% or 3% during the period, mostly based on higher tax credits that we realized.

In this period, we ended up with 11.1 cents and retained in our earnings per share in comparison to 10.8 cents. So about even from last year, up a little bit just with the increase in the income and EBITDA is expected tracked along about the same as income. Moving to the next slide. Thank you, Walt.

Our consolidated net revenues were up just under 10% for the year-to-date, a little over $16 million for the first nine months. $485,000 of the increase was revenues generated by the Buffalo division representing about a 12.7% increase. Revenues from Lancaster increased $927,000 or about 8.6%.

Software and software related items increased 8.9% or were about $923,000 of the increase while the remaining increase was in consulting and in analytical study revenues of about $492,000. Our consolidated gross profit increased $1.18 million or 10.4%.

$297,000 of the increase in gross profit was from Buffalo which showed a 59.1% gross margin on their consulting services and Lancaster accounted for about $881,000 of the increase which came mainly from increased software licenses sales.

Lancaster division showed an 85% gross margin for the nine months period and our overall gross profit margins were consistent with last year, up slightly to just under 78%. Moving on to SG&A. SG&A decreased about $155,000 over the prior year.

Some of the larger increases that we had came from advertising and marketing as well as some increased licensing expenses based on our volunteers that we use. And again, addition in professional fees were up due to some tax, consulting tax-related items and compliance issues.

The consulting fees for the year, we’ve talked about this before, but we paid in the first quarter of 2015 just under $400,000 to the broker who brought Cognigen on to the table and so, those were not present in the current year.

Moving to research and development, overall expense to R&D is up $179,000 as we continue investment in software products as well as working to improve our current offerings. Total R&D spend has been consistent though from year-to-year the difference being just the allocation of what’s capitalizable and what is not.

Income from operations is up – just under 23% for the nine months while income increased $43,000 due to the strengthening of the yen which we spoke about and we talked about the third quarter. Our effective tax rate for the year is about equivalent of last year. It’s been running at about 33%.

Looking at net income, our overall net income increased by $810,000 or about 24% resulting in earnings per share of $0.24 per share, up about 4.5 cents over the prior year. The increase comes again from two main sources, the increased revenue and the overall reduced SG&A expenses in 2016.

Lastly, and as expected, EBITDA continues to grow as our profits grow. Moving on to the chart, this chart shows consolidated revenues for all the four quarters, shows us the – you can see from the last two years the effect of Cognigen’s acquisition had as well as the increase in our revenues for the current year.

For those who haven’t followed Simulations Plus for very long fourth quarter, it historically has been a low quarter for us in the summer months, especially with software sales, but the acquisition of Cognigen shored up that fourth quarter number.

Next slide shows consolidated gross profits which as one would expect to tracking fairly consistently with the growth in sales.

Moving to consolidated net income, we generally see the same trend in growth except, in this case, the first quarter of 2015 where we have paid up the $400,000 in consulting fees and in 2014 we had some impact over the quarters just due to the cost of the acquisition as we are expending professional fees in that time.

Next slide is diluted earnings per share. As expected, the quarter in earnings per share followed with our revenues and profits, though $0.11 per share this year and last year we are up $0.04 overall for the year.

EBITDA, actually down just slightly for the quarter, but again very consistent with where we would have expected based on earnings per share with our stable what I would consider very stable business model.

The blue bars down below here show our cash dividends and this which have been very consistent over the last 2.5 years at $0.20 a share basically for the entire time period. Our current cash is at $8.9 million. In this last quarter, we paid out $750,000 under the terms of our 2014 renegotiated royalty agreement with TSRL.

The final payment for that agreement will be in April of 2017 and we anticipate paying that out of our normal operations. This current quarter we’ll be distributing the final payment of little over $700,000 to the former owners of Cognigen. Moving on, you’ll see the ratios of consistency with the company’s balance sheet items.

We consider the balance sheet to be very strong. The company is very liquid and especially well capitalized for software and R&D type company of our size. Financial ratios are good. We haven’t had any need to borrow for any of our initiatives or operations and feel like we are poised for even better results in the future.

And with that, I’ll turn it over to John. .

Thank you, John. In case we’ve got anyone new to the company online today, what I’ll do first here is briefly describe our solutions and where they fit into the drug development process.

In a nutshell, what we do is offer model-driven end-to-end solutions which span from early discovery through clinical development and into regulatory filings post approval.

Our Cheminformatics software consisting of the ADMET Predictor, MedChem Studio, and MedChem Designer platforms allow research scientists to design new compounds and virtually screen them across the spectrum of properties helping to prioritize testing that will be done downstream.

The simulation software consisting of GastroPlus, DDDPlus, MembranePlus and the new PKPlus platforms help scientists model and predict complex in vitro experiments and then ultimately the in vivo exposure in animals and humans.

And the KIWI platform which Ted will talk more about is a cloud-based validated platform for managing and communicating pharmacometric projects and results. These software tools are all complemented by a team of expert scientists who provide model-driven consulting support on a project-by-project basis. Next slide.

Diving deeper into the products themselves and sharing some product news. As Walt mentioned earlier, our software development team is working really hard on new releases for all programs.

The next version of GastroPlus, the flagship product is expected this summer and will include a new optional add-on feature for intramuscular dosing, also enhancements to our recently released biologics module which we expect will help deliver more sales of that feature going forward.

The Cheminformatics development team has been working really, really hard refreshing that ADMET Predictor interface utilizing many of the existing features from our MedChem Studio platform.

The optional add-on module that we are adding to ADMET Predictor this MedChem module should lead to increased adoption of the program by medicinal chemist which is a pretty large target market within the pharmaceutical space that we haven’t been able to penetrate very well yet.

We released DDDPlus 5 several months ago and have seen a really nice uptick in sales over the past two quarters from that and we hope that the changes to this program and later in the year to MembranePlus will continue to increase the exposure of these in vitro simulation tools and be a solid revenue driver for us in the future.

And then finally, I think everybody on the call is aware about the development efforts with PKPlus. Fortunately, it is set for release very soon based upon the initial feedback that we’ve gotten to-date, there is significant enthusiasm for this potential low-cost high volume tool and we are genuinely anxious to get into people’s hands.

Next slide please. John has discussed the company's performance in Q3 already and we’ve already talked about how it was not on par with some of our historical averages. The consolidated software revenue growth for the quarter was 2% and this is driven largely by our ability to maintain historically strong renewal rates.

Consolidated consulting revenue decreased by about 1% in Q3, as John mentioned earlier, this is due to an unusual number of clinical trial issues occurring at once which impacted the project pipeline a little bit. As you can see on the bar chart on the upper right, we had an 11% decrease in the number of software units licensed.

This is due to the high number of pro-rated licenses that we recognized in last year’s third quarter which were renewed in other quarters this year. We did manage to still add 60 new clients in Q3 including eight commercial clients, three from India.

And as a reminder, our definition of a new software client is going to be any company that has never licensed our technology before or an existing group or a company that has added licenses into new departments or new research sites.

In the pie chart, in the lower right, you can see that software license revenue was approximately 76% of the total for the quarter with consulting and training services making up the remaining 24%. Next slide please. Numbers for the first nine months of 2016 are strong when compared to the same timeframe in 2015.

Consolidated software revenue growth for the quarter was 9% with a 10% increase in the number of software units licensed. This increase was driven by the 55 new clients that we’ve had to-date and also expansion of licenses at the US FDA, EPA and China FDA which I’ll talk a little bit more about coming up.

Consolidated consulting revenue increased by 12% for the first nine months with most growth coming from additional consulting work in Buffalo. And before we move forward, I just want to emphasize something that we mentioned in both of the press releases that have come out since early June about the numbers for the third quarter.

The underlying sales fundamentals are still very strong and as we enter into this fourth quarter, I think we expect to regain that positive momentum in revenue growth and finish the year on a high note. Next slide please. We continue to see a really nice distribution of revenue globally. But we did see some weakness in Asia in Q3 with India excluded.

We feel that this is just a one-off event and this is supported by the really strong turnouts that we had at our China workshops in May and a full schedule of visits on our recent China trip at the end of May beginning of June. We are recruiting actively four distributors in India and Korea.

We’ve mentioned this before to help us establish a local presence in those territories.

They would hopefully complement the distributors that we already have in place in Japan and China and we hope to finalize some agreements soon and also we are currently interviewing sales representatives for a business development position which will be based on the East Coast of US. Next slide.

And then finally in terms of marketing activities, the major focus has been on our website redesign project which is nearing completion. We hope to have this online within the next four to six weeks or so. Additionally, we continue to attending and presenting at a lot of conferences in Q3 and hosting onsite training seminars around the globe.

Of particular note, we were invited as a speaker and panelist to an FDA organized workshop on mechanistic absorption modeling in May where the FDA invited scientists from regulatory agencies, industry and academia to discuss best practices and future applications of modeling and simulation.

Attendance was very strong and we think that this serves as another indicator of the push from the regulatory side towards more use of modeling and simulation.

We also hosted a two day seminar for China FDA scientists in May which drew an audience of 80 from all of the local or regional China FDA offices to Beijing to the headquarters who were required by the directors at each of the regional offices to learn more about our mechanistic modeling and simulation approaches.

We are going to continue with an aggressive workshop schedule through the end of 2016 and as usual to help with all of our promotional activities, we do have and maintain a really robust social media presence which is complemented by our participation in various webinar series and the publication of peer reviewed journal articles.

And with that, I am now happy to invite Ted to give an update on the Buffalo operations. .

Well, thank you, John. Good afternoon everyone. I am going to talk about the activities of Buffalo in terms of consulting as well as activities that we have ongoing with the KIWI platform.

So, I think that we’ve emphasized on numerous occasions, strategic and synergistic benefits of the Cognigen acquisition and we continue to find new and very interesting and important projects to work on that required collaborations between Buffalo and Lancaster scientists and we continue to find new ways of using modeling and simulation to address some of the really interesting problems that clients present to us.

And these projects are important, because they help to shape management and a regulatory decision-making process, because for some of the companies that we work with especially the smaller biotech companies modeling and simulation is a new sort of decision-making activity and these projects are helping to drive not only additional consulting projects, but also software sales.

As an overview of where we are in terms of our consulting projects, so far in fiscal year 2016, we’ve worked with 27 companies on 48 drugs in 85 different projects. We picked up eight new companies so far in 2016 and 11 new projects just in this third quarter.

We had eight projects that we were already working on that expanded in scope and as John Kneisel had mentioned previously, we had two projects that were delayed, we will still be working on them at some point in the future because of slow enrollment of patients into the trial.

And disappointingly had three projects that cancelled really at sort of the last minute while we were just getting started to work on them because the company found that the trials had failed and they were not going to go forward with those projects.

So we worked hard to close up that revenue gap and got most of it there and we also have a really robust pipeline with right now 39 outstanding proposals with 20 different companies and we expect that those proposals will be coming in over the months ahead. We continue to be very active in promoting the results of our scientific endeavors.

So far in 2016, we’ve presented 15 posters at different scientific meetings and published two papers and we are also currently working on 15 publications and four conference abstracts that highlight the value of the work that we performed and the results of those analyses.

The most common therapeutic area that we work on are new medicines for oncology and that’s followed by neurology and immunology.

And of course the goal of all of our work is to facilitate companies to submit their products for regulatory review and in the short-term, about 25% of the projects that we work on go directly into regulatory submissions and of course some of them are delayed because we are working on projects during the early portion of the program and take a year or two or more for those to come to fruition.

Also emphasizing again the synergy between our two groups, we presented for the first time the value of ADMET Predictor in predicting aspects of drug metabolism for medicines at a clinical pharmacology meeting and that was the first time that had been done.

And that poster was met by a great deal of interest actually and opened up a number of new conversations with potentially a new community of users for those – for the software and also for consulting efforts built around that predictor software.

Moving beyond consulting, one of my interest and one of our focus is to capture some of the cloud computing marketplace that we see growing in the pharmaceutical industry. And I have mentioned before that all of the work that goes into doing these modeling and simulations can be quite messy.

We have data and inputs that come from many different groups within the pharmaceutical company and their vendors and we pride ourselves on a careful synthesis and the communication of those results that we provide.

So the industry has now enormous computing power, but we believe that it lack tools for actually harnessing that power and facilitating that data synthesis and communication. And in that need was born the KIWI platform, a validated cloud processing software where clients access KIWI via an internet browser.

They have the access to a variety of different modules that help them manage their modeling projects, organize them and then communicate them to their team as they already to submit the modeling projects they are forwarded to our grid server which sends it to the grid as the jobs completely go back to a storage facility and it is there that scientists can access those results and present them to their management.

We recently signed a $4.7 million contract with a major foundation to implement a KIWI platform for a number of global teams that are funded by that foundation and engaged in model-based drug development activities. This is for a five year term and it’s contingent on satisfactory completion of various milestones.

This project builds on our extensive process-related research that went into designing the basic KIWI platform and the funding enables us to make a number of substantial enhancements to that platform.

And that’s going to provide us with a scaffold for – with broad applicability to not only the diseases of interest to the foundation but these capabilities are going to be available to all of our academic and industry clients.

We have been continuing to demonstrate KIWI to a variety of different research groups both within academia as well as in small and large pharma and we actually expect to close on three KIWI licenses in the fourth quarter of 2016. So in summary, the Buffalo division is strong and growing.

Our consulting activities continue to expand and we continue to realize synergies with the scientists in Lancaster with respect to physiologically based pharmacokinetic modeling in clinical pharmacology. The contract that we have to enhance KIWI platform is a major step forward in what has been our long-term vision for the product.

So we are very excited about that and we continue to see interest in the academic and industry communities regarding licensing. And with that, I’ll turn it back to Walt. .

Thank you, Ted. So just to summarize again, you’ve heard the numbers several times and read them on Q, but the third quarter was the strongest quarter in our history for both revenues and earnings.

Percentage gains don’t look as high as we are used to because of the very strong third quarter last year that were compared to, but we did manage to beat it and nine months of course exceeding all of the years by a very substantial margin. Both divisions are performing well.

The synergies are working out very nicely just really what we had expected two years ago when we first combined the two divisions. We are addressing regulatory agency interest, so, the regulatory agencies now are really pushing simulation and modeling and model-based drug development. It’s nice to see that finally happening after 20 years.

Again, this month is our 20 year anniversary for Simulations Plus. And what a change it has been since 1996 when you hardly heard anybody talking about simulation and modeling at some of the major scientific meetings, we are now at significant sessions and threads at those meetings.

The contract that Ted mentioned, the $4.7 million contract is the largest in our history and we believe that has the potential to have additional such contracts with the same foundation for other disease areas and also with other organizations.

Software sales, the strong foundation that we have based on the annual license business model with built-in compounded growth has been a very successful pricing and business model now for a decade or more, actually plus the two now. The global market, according to the Grandview Research report is supposed to reach over $4 billion by 2020.

Now that includes a lot of different things. I don’t think we will see more than maybe $1 billion of that, that’s a joke.

But there is definitely a lot going on in competition in biology in pharmaceutical research where the use of simulation and modeling to screen out the losers, especially and then analyze the results of the actual trials more efficiently is just a growing trend.

I read this morning that the FDA recently announced that the goal that they had to reduce the back or generic ANDA or Accelerated New Drug and Applications for generic formulations to reduce that backlog by next year is going to be achieved this year according to Janet Woodcock who is the Director of the Center for Drug Evaluation and Research at the FDA.

There is a lot going on.

The FDA has received over $900 million in fees that are user fees from generic companies when they submit an application now I believe it’s $350,000 per new application and they are using that money to fund a number of things but in particular, we are pleased to see that they are using some of it to fund advances in simulation and modeling and we’ve been the beneficiary now of two contracts and again have two more that are in – that have been submitted and are in evaluation.

So that is the end of the slideshow. I will leave it on the summary slide to perhaps promote some questions there and then we will look at answering the questions. So I am going to turn it back to Renee. .

Hi Walt. Howard Halpern sent a very lengthy question. It’s actually multiple parts.

The first part is, can you provide an overall update on where the capabilities and desire stands for biotechnology, pharmaceutical and consumer products companies to use biosimulation to meet their future needs?.

John Di, do you want to take that?.

Sure, I’ll comment and then I let you or Ted provide some additional insight. The desire is, I think stronger than ever for the use of biosimulation.

I think that we are starting to see quite a bit of adoption of the approaches much more from a mechanistic standpoint in the preclinical and clinical pharmacology areas and we are also starting to see quite a bit of interest from the non-pharma biotech spaces.

We’ve been very fortunate to identify several agrochemical and consumer product companies to partner with on the promotion of the technology that we offer and that has led to a significant amount of interest from other groups in those marketplaces who are requesting more information demonstration and so on.

I think Walt has on this summary slide a note about the research – or from a research report about the expected growth in biosimulation and biosimulation use and I would say that we expect to chunk of that going forward. .

Okay..

Would you want to continue with it?.

Well, Howard’s question goes on.

Given the revenues for the nine months have increased by over 9%, should we be concerned by a 15% decrease in new customers 54 [indiscernible] 64?.

John Di, I think that’s for you again..

Yes, no, I don’t think that that’s the – that’s anything to be concerned about. I don’t have the details in front of me, but I believe that the decrease in the number of new customers is due mostly to a really high number of non-profit organizations that license in 2015. So that led to a really high number we reported.

It’s more important I think to focus on the number of software units that are licensed and also the revenue growth numbers which are up 10% both categories through the first nine months. So I am not concerned about the fact or of new customers reporting down a little bit. .

Okay, Howard just goes on to ask, you mentioned a healthy pipeline of consulting projects entering 4Q fiscal year 2016.

How many projects do you anticipate working on during the quarter and what are the prospects entering fiscal year 2017?.

Well.

I assume that’s for Ted..

Sorry, go ahead, Ted..

Okay, I wanted to just pick up on what John was saying before about the overall marketplace. What we see in the consulting projects is really a virtuous cycle where the more senior managers and leaders of drug development teams see the results of modeling and simulation efforts, the more they want them.

And it’s reflected – that desire is reflected in the cup of new projects not only from new companies but also recurring business from existing customers and we have a very healthy return customer set of activities. In terms of Buffalo consulting activities, we do have a really good pipeline.

There is a total of 39 proposals that we’ve put out to different companies where a really a healthy mix of small biotech companies, medium pharma companies as well as large pharma. So we try to mitigate risk by making sure that we have that healthy mix of customers with products at many different stages of completion.

In terms of the number that we expect for the next quarter and into 2017, I can only say that we do have a healthy pipeline and we are very optimistic about the future. .

Okay, Ted. He goes on to ask, Howard, about the $4.7 million KIWI contract.

He has asked, what should we begin seeing in terms of revenue and expenses and in fiscal year 2017 from this contract?.

Yes, so we’ve been very deliberate over this past quarter in really understanding what the needs are of the scientists that we are going to be serving with the platform and we’ve had extensive conversations both internally as well as with anticipated customers about what their needs are.

That planning and design activity is going to continue for a little bit going forward and we will start thinking about who are the people we are going to hire. How we are going to get this work done as quickly as possible. So a lot of that is in flux right now.

But we are just continuing to make really good progress on the plans and plans for the future. .

Okay. Howard’s last question is, what type of interest and from what type of customers are you seeing for your new product release PK Plus and upgrade for ADMET Predictor and GastroPlus. .

John Di?.

Yes, so, PK Plus is interesting because that program is going to be applicable to any scientist that is doing any sort of in vivo PK, in vivo pharmacokinetic type activity. We’ve actually had a number of folks of course within the pharmaceutical biotech spaces asking for more information on the product.

But we’ve also seen a lot of people from the non-pharma markets which surprised me initially but then I came to appreciate the fact that folks in safety research, in toxicology, they are going to be doing a lot of preclinical animal testing work and they need to do some assessment of the exposure levels in the pharmacokinetic parameters of these compounds.

So, the PK Plus interest and the type of customers who are requesting more information, it’s coming across markets, it’s going to be any scientist who is going to be really doing any type of in vivo PK activity. The upgrades for ADMET Predictor and GastroPlus, we’ve always had with ADMET Predictor really, really good underlying science.

The best predictive models on the market and we’ve always lagged a little bit in comparison to the competition with regards to some user interface type features and fortunately now we’ve got a really slick interface that is exciting a lot of people. We are actually seeing quite a bit of interest from medicinal chemists.

That’s a pretty large market in the pharmaceutical space that we have been missing with the program before. And so we hope that with the ability to now visualize the results in a better way, we will be able to target that group a little bit better.

Also the synergies between GastroPlus and ADMET Predictor is something that we’ve been heavily promoting over the last couple of years especially and we hope that the upgrades to GastroPlus, the synergy with ADMET Predictor will allow us to promote some of these new features earlier into discovery with GastroPlus and maybe a little bit later into development with ADMET Predictor.

.

Thank you, John. Donald [Indiscernible] has a couple of questions.

Why your accounts receivable up nearly $3 million since August? Will these accounts be seen as revenues in the next quarter?.

I am looking for the slide John to help you answer that. John K, but I don’t see a balance sheet slide. So where is it? I don’t see accounts receivable. I am not sure which slide that came up of that.

John K, do you want to talk about that? John Kneisel?.

Yes, Walt, I was muted. At the end of August last year, we actually, August, that last quarter being our low quarter of the year. We actually did a great job of collecting money before the end of the year. So we are about $600,000 or $800,000 lower in accounts receivable than we normally would have been.

So the numbers are a little bit skewed and as we come up in the quarters – our third quarter is always generally the highest receivable quarter for the year. So it’s just a little bit of a normal ebb and flow of cash flow and how good people pay or don’t pay in a very short period of time.

On the second half of the question that will the accounts be seen as revenues in the next quarter, our receivables are already recognized revenues and for the majority of them, very few that we’ve actually sent receivables out under a contract where we have the ability to bill for the contract. So that’s – those are already recognized revenues..

So that’s part of our $8.9 million in cash that we have now?.

Yes, well, not the current receivables at the end of the period, but it is – yes, some of it is collected out, but he is talking specifically about will the revenues be seen in the next quarter, no those are already previously recognized revenues. .

Okay. .

Okay, [Indiscernible] has another question concerning PK Plus or actually after PK Plus, now the PK Plus modeling development is nearing completion but subject to areas will now be targeted for development for example aero modular et cetera?.

Okay, well, PK Plus version 1 is nearing completion, but we have other things we want to do with PK Plus.

So there will be some ongoing developments there and then we will end up with some time available from our team that’s been working so hard on PK Plus for about a year now to get back to looking at the aerospace applications and healthcare applications, those are things that we want to take a look at, but in any of our software programs, GastroPlus, ADMET Predictor, PK Plus, DDDPlus, MembranePlus, we always have ideas that could not be incorporated in the most recent release.

So, as soon as we get a release out, we are already starting to work on the next release. It’s kind of truism in the software industry, that software is not evolving and improving, it’s probably dying. And we are certainly not going to let that happen with any of our programs.

So continued reclinement and expanding of capabilities of the programs we have already. I mentioned the two FDA proposals that are in that total $1 million of R&D over the next two years. If we were to win both of those and those are both directed forward improvement to GastroPlus. So there is no shortage of things to work on.

A lot of it is continuing to refine existing products and then hopefully again getting into some new areas in aerospace and generalized healthcare. .

Okay and what appears to be our last question is from Mike Challenger [Ph].

He asks what is the price or range of prices for KIWI?.

I am not sure if we’ve published ever..

Yes, I was going to say, I didn’t want to get into the specifics of the pricing right now. But I would say that in total, the prices are based on a number of users and we have some installations where there is a single user and others where it’s a global pharmaceutical company with multiple users, stations in different countries around the world.

So it’s quite a bit, but I don’t want to get into the specifics right now. .

Thanks, Ted. Hey, Renee..

That appears to be the last of the questions. I don’t see anybody raising a hand. So I think that pretty much concludes our question and answer period. So this concludes today’s conference call and webinar. If you missed any part of today’s presentation, replay will be available at our website www.simulations-plus.com. Thank you all for joining us today.

Enjoy your afternoon and have a splendid summer..