Good afternoon, everyone. On behalf of Simulations Plus, I welcome you to our Fourth Quarter Fiscal Year 2020 Financial Results Conference Call and Webinar. Hosting the call today is Simulations Plus’ CEO, Shawn O’Connor; and the company’s CFO, John Kneisel. An opportunity to ask questions will follow today’s presentation.

[Operator Instructions] Before beginning, I’d like to remind everyone that with the exception of historical information, the matters discussed in this presentation are forward-looking statements that involve numerous risks and uncertainties. The actual results of the company could differ materially from those statements.

Factors that can cause or contribute to such differences include, but are not limited to, continued 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 the current levels of productivity.

Further information on the company’s risk is contained in the company’s quarterly and annual reports and filed with the Securities and Exchange Commission. With that said, I’d like to turn the call over to CEO, Shawn O’Connor.

Shawn?.

the FDA approval of Ubrogepant, in which DILIsym modeling predicted liver safety profile supporting its advanced to Phase 3 clinical trials and ultimate approval without labeling warnings where the first two drugs in class failed due to significant liver toxicity.

The FDA approval of Pexidartinib, the first symptomatic therapy for treatment of symptomatic tenosynovial giant cell tumors, where DILIsym liver toxicity analysis supported its NDA.

And finally, the inclusion of DILIsym liver safety analysis and the scientific review of the State of California Office of Environmental Health Hazard Assessment of Acetaminophen, these are but a few of the examples, which modeling and analysis as a simulation analysis is impacting our clients’ interactions with regulatory agencies.

During fiscal 2020, we introduced two new service offerings. Regulatory Strategies headed up by Sandra Suarez-Sharp, who joined us after a long tenure with the FDA. The objective of these services is more strategic versus data analysis in assisting our clients on how to derisk and accelerate their interactions with global regulatory agencies.

COVID Strategies, many of our clients have obviously focused their efforts on the development of potential therapies for COVID. During the past quarter, we were engaged in multiple discussions related to these programs and have recently closed several contracts in this area.

And finally, we continue to grow our capacity to meet the needs of our clients. During fiscal year 2020, the consulting staff grew by approximately 22% in support of our project growth, and positioning us well for fiscal year 2021. We generated strong growth from each of our consulting sources.

During the overall – driving the overall a 30% growth rate for our consulting businesses in fiscal year 2020, PK/PD consulting revenues grew 24% for the year. QSP QST consulting revenues grew 42% for the year, and PBPK consulting revenues grew 30% for the year.

The diversification of our consulting revenue sources is important in smoothing consulting revenue fluctuations. And finally, our consulting backlog continues to exceed $10 million at the end of the year.

While a slowdown of new contracts because of COVID prevented us from growing backlog in the year, we’re still well-positioned as we enter fiscal year 2021. Let me turn to our fiscal 2021 outlook. Our goal is to maintain fiscal year 2021 organic growth in the 15% to 20% range, in line with the 18% organic growth we delivered in fiscal year 2020.

In fiscal year 2021, incremental Lixoft revenue could contribute an additional 3% to 5% of revenue growth on top of the organic growth. Any revenue contributed by acquisitions closed in fiscal year 2021 would as well be incremental to this. Certainly, the pandemic will continue to create headwinds as we enter fiscal year 2021.

New software license customers and new consulting service contracts will continue to close at a slower than historical pace.

We’re currently in the budgeting season for most of our clients, and we’ve observed and participated in their efforts, which have often included the reallocation of R&D spend to accommodate their ongoing investment in COVID-related therapies.

We expect that this budgetary process, when complete, will provide some stability to programs that over recent times have been on hold awaiting decisions. We’re targeting software growth of 20% to 25%, up from the 16% in fiscal year 2020. This growth rate is based on the new version of 9.8 release of GastroPlus.

And in fiscal 2021, we expect the release of version 10, which we will market as GPX. Additionally, ADMET Predictor growth which accelerated in fiscal year 2020 will carry momentum into fiscal year 2021 and have additional revenue opportunity with the new AIDD module.

Monolix Suite is performing well and tracking to their 15% and 30% growth rates as anticipated in their earn-out agreement. We’re rolling out a modest price increase and changes in our discount policies. And finally, our focus on processing initiatives will help us accelerate software growth.

Prior sales and marketing resource and infrastructure investments are now being focused on strategic sales initiatives that will provide benefits. On the consulting side, we anticipate growth rate in fiscal year – our growth rate in fiscal year 2020 of 30% to be in the 25% to 30% in fiscal 2021.

We see continued demand across our services with PKPD and PBPK services remaining consistent. DILIsym demand is expected to settle into a more consistent delivery of project flow, but the growth rate in line with historical trends.

Growth will continue to benefit from the continued success of our regulatory assistance offering and the COVID strategies program. Overall, I expect the accelerated growth we have delivered in fiscal 2020 to continue into fiscal year 2021. Finally, let me speak briefly to our M&A strategy.

We are actively engaged in M&A efforts focused on a population of targets that we believe could add value to our growth [indiscernible] and serve value to our client base.

The targets consists of both software entities that extend our modeling and simulation application offering portfolio and service opportunities, which provide new service capabilities and/or add to our service capacity and geographic coverage.

We have been successful in our historical M&A efforts in large part due to our focus and rigor in evaluating acquisitions. We continue to adhere to strict acquisition criteria that include product and culture fit, enhancement of value to our clients and appropriate valuation and accretive characteristics.

I’m pleased with the progress that we’ve made effort today and excited about the size and quality of the pipeline. That said, we plan to move methodically and cautiously with a goal of continuing our M&A successes, safeguarding shareholder capital and creating sustainable value.

I’ll now turn the call over to John to review some detailed financial results.

John?.

Thank you, Shawn, and good afternoon to everyone. Our consolidated net revenues for the fourth quarter of fiscal year 2020 were up 19% to $9.5 million compared to $8 million in the prior year quarter. On an organic basis, which excludes Lixoft acquisition, our revenue grew 7%.

As Shawn indicated, organic growth was lower primarily due to four clients reducing licenses as a result of acquisitions site consolidations and layoffs. In addition, last year, the fourth quarter saw sales that were expected to close in the third quarter, instead slipped into the fourth quarter.

As well, our DILIsym division of consulting revenues came in higher than normal, a certain projects accelerated into Q4 2019 that have been expected to be delivered in the 2020 fiscal year, sorry about that. Both ultimately affected the growth rate in the fourth quarter.

The general sectors we offered in, software and life science, pharmaceutical have tended to maintain momentum in the midst of the pandemic. So, as Shawn mentioned, we faced modest headwinds in securing new accounts, and we’ve experienced some smaller renewals due to site consolidations that some of our customer sites.

Consolidated software and software-related sales increased $919,000 or 24% over the fourth quarter of 2019. Lixoft software sales accounted for this increase is organic sales were relatively flat during the period. Consolidated consulting and analytical studies increased about $600,000 or 14% over the prior year.

Cost of revenues increased 17% or $384,000, resulting mainly from increases in labor related costs, which were partially offset by a decrease in direct expenses on contracts as less of the consulting projects required lab testing during this quarter.

In addition, we saw lower customer training related costs as most training was completed virtually due to COVID restrictions. Total gross profit increased 20% to $6.9 million, representing a 72% gross margin in the fourth quarter of the fiscal year compared to a gross margin of about 71% in the same quarter last year.

Overall software margins were 82% and consulting margins were 62% for the quarter. SG&A expenses were $3.7 million or 39% of revenue in the fourth quarter this year. The dollar increase of $531,000 or 17% compared to $3.2 million or 40% of revenue in the fourth quarter of fiscal 2019.

This increase in SG&A expenses was primarily the result of increases in selling expenses and commissions. Salary and wage increases in labor-related benefits in support of company growth and some increased depreciation and amortization expense, mostly associated with the Lixoft acquisition.

We saw decreased travel expenses, again, as you said, that based on pandemic-related cancellations of conferences. A total of $291,000 of this total increase came from new subsidiary during this quarter. Research and development expenditures for the fourth quarter were $1.6 million. Of this total $948,000 was expensed and $621,000 was capitalized.

This compares to $1 million of spend in the year ago quarter with $6.3,000 expense and $406,000 capitalized. Income from operations was $2.2 million for the fourth quarter of fiscal year 2020 compared to $2 million for the fourth quarter of 2019.

The increase was primarily driven by higher gross margin on increased revenue, which was offset by an increase in operating expenses. The provision for income taxes in the fourth quarter of fiscal year 2020 was actually a benefit of $150,000 for an effective tax rate benefit of 7%. This compares to a tax benefit of $72,000 in the year ago quarter.

This tax benefit comes mainly from corporate tax deductions based on an increased number of options exercised and sold in the fourth quarter as some employees sold shares based on increased stock prices. Also, foreign tax credits and foreign deemed intangible income deductions helped to lower our tax rate.

The same situation occurred in the same quarter last year with respect to the stock compensation. Net income increased by 6%, $129,000 to $2.2 million in the fourth quarter of fiscal 2020 compared to $2.1 million in the year ago quarter, due primarily to the tax benefit I just discussed.

On a per share basis, net income was $0.11 per diluted share in the fourth quarter this fiscal year. The same as the $0.11 in the fourth quarter of last fiscal year. EBITDA was $2.9 million in the fourth quarter this year compared to $2.6 million last year. Now turning to an overview of the financial performance for the fiscal year.

Consolidated net revenues for fiscal year 2020 were up 22% or $7.6 million to $41.6 million compared to $34 million the year before. Our gross margin for fiscal year 2020 was 74% compared to 73% last year, an improvement of 100 basis points.

SG&A expenses, including $1.4 million of M&A transaction related costs associated with the Lixoft purchase were $16.4 million or 39% of revenue for fiscal year 2020 compared to $11.8 million or 35% of revenue for last fiscal year.

Our second and third quarters, we incurred a total of $1.4 million of acquisition related costs in the fiscal year 2020 for legal accounting, due diligence and M&A banker related fees. Without these M&A transaction costs, SG&A would have been approximately 36% of revenue.

Our research and development spend last year was $5.3 million, up $1.1 million from $4.3 million. The expense portion increased $0.5 million to $3 million. For the full fiscal year, R&D expense as a percentage of revenue was relatively unchanged at about 7%.

Income from operations for fiscal year 2020 was $11.6 million compared to $10.6 million last fiscal year and net income increased by $749,000 or 9% to $9.3 million. Our effective tax rate for the year was 18% down from 19% in 2019. We expect our tax rate to be in the low-20s and the 20% to 23% range for next year.

But this rate will depend on the effect of stock and foreign related deductions and credits. Diluted EPS was $0.50 per share for fiscal year 2020 compared to $0.48 last fiscal year. The Lixoft related transaction lowered diluted EPS by about $0.06 per share for those expenses.

EBITDA was $14.4 million for fiscal year 2020 up 7% compared to $13.4 million in 2019. Moving to the revenue slide. This slide shows quarterly revenues.

Please note, as Shawn had mentioned earlier, our third quarter each fiscal year is typically the strongest followed by a decrease in revenue in the fourth quarter that coincides with the slowdown of our clients purchasing in the summer months. Each quarter this fiscal year, we showed increase in sales.

Our EBITDA generally follows the same quarterly seasonal patterns as our annual revenues with the third quarter being the highest quarter followed by lower numbers in the fourth quarter and summer months. This line provides average revenues per commercial customer. Note that it excludes software revenues from academics and non-profit entities.

Software annual revenue per customer has been relatively flat, but we see this as an opportunity going forward as we execute on our cross selling and pricing strategies. And this top of the slide shows gross profits for both software and consulting revenues and the blended total software margins.

We’ve maintained fairly steady margins in both business lines with software ticking up slightly with the advent of the Lixoft purchase in 2020. Our consulting business is high margin technical work, which allows for higher contribution margins than normally would be expected in the consulting business.

The bottom of the slide shows annual EPS for the last three years. The blue line is as it was reported in our Ks and the red line is pro forma EPS taking into account the effect of acquisition related expenses in 2020 and the effect of the implementation of the new tax laws on deferred income taxes in 2018.

With these pro forma results taken into account, you can see the steady increase in EPS that’s been generated from year-to-year. This slide is our revenue by region for the last few years. We’re a global business with the majority of our revenues here in Western Hemisphere.

In 2020, approximately 71% of the revenues were sourced in the Americas, while Europe represented 14% of the total and Asia 15%. About half of our Asian sales were derived from sales in Japan, European and Asian sales are mostly software related. Turning into the next slide. The company generates positive cash flow from operations.

This cash has historically allowed for small acquisitions is also allowed the company to consistently pay a dividend. The company is paid quarterly cash dividends from the excess cash generated from operations. These dividends have totaled over $4 million each of the last three years.

During the fourth quarter of 2020, we completed a secondary offering of about 2.1 million shares of our common stock at an offering price $55 per share that raised about $108 million after underwriting discounts and commissions and other offering expenses.

This capital raise allows for growth and acquisition, as Shawn has discussed our growth strategy. These offering funds have been invested in short-term risk adverse investment grade instruments, mainly corporate bonds and government instruments. At the end of fiscal year 2020, we had $116 million of cash and short-term investments.

This next slide provides some data on employee head count. The company has grown by 54 people since the beginning of 2018, both through hiring and acquisition. Our scientific staff has increased by over 60% in the period, supporting an increased ability to provide services and support software innovation and development.

Turning to the next slide, we’ll just cover some basic financial metrics. At the end of the year, as I said before, our cash and short-term investment balance was approximately $116 million compared to $11.4 million at the end of last fiscal year. This increase is from the proceeds of the secondary offering we just discussed.

We used cash generated from the year for acquisitions and the final payout of an earn-out for DILIsym. Our balance sheet remains strong with excess cash and zero borrowed debt.

With our continued cash flow in generation and prudent approach to allocating capital, we’re well positioned to support our continued growth and protect our business during the economic cycles. I’ll now turn the call back to you, Shawn..

Thank you, John. In conclusion, this was a tremendous year for SLP. We achieved our goal of increasing our organic growth rate to the 15% to 20% level. We made another beneficial acquisition adding Lixoft to the Simulations Plus family.

We view this as a significant addition to our software portfolio and an addition of talented scientific staff to our organization. We positioned ourselves for future growth with the completion of our capital raise in August. As a company – we remain focused on delivering good science, measurable value and quality service to our clients.

I’m proud of the work we’ve done and the accomplishments of this company. And I thank the employees and partners of Simulations Plus around the world for their hard work and professionalism, all amidst what has been a challenging time for all of us. And with that, I’d like to turn the call back to the operator and take any questions you may have..

Thank you, Shawn. [Operator Instructions] The first question is from Matt Hewitt with Craig-Hallum. You might be muted, Matt? We’ll move on to the next question. The next question is from Curtis Scott [ph]..

Are you on?.

I’m on. Thank you. Wonderful report. My question is a very general one as an investor and maybe it’s too broad. But the question is, how does Simulations Plus plan to use 5G and quantum computing to improve its products..

Curtis, thanks for joining us today and appreciate your long-standing tenure and support the company..

My pleasure..

Well, those two technologies contribute to increased processing power and speed. And I can’t say that we’re leveraging those two individually. But the speed of our processing of our analysis, our simulations is an important factor. We have historically delivered well in that regard.

And in many bake-offs and competitive sort of analysis always come out on top.

I mean during this last year, one of the key features or improvements in the ADMET Predictor and specifically the AIDD module were improvements made in terms of the processing and our ability to analyze molecule accounts on a fast pace and that certainly is accruing to our clients. We utilize multi-core processing capabilities.

We have the ability to ourselves or for our clients to access the web services to reach out and garner more horsepower. Our clients, their internal IT departments provide that sort of infrastructure as well. So we’re well positioned as we speak today, and we’ll always look to keep improving in that regard going forward.

It does not seem to be a gating item at this point based upon input for clients, but always pushing the edges to do it bigger, better and faster..

Great and good to hear..

Thank you. [Operator Instructions] I will go to some of the written questions that we have that were sent in. First one is from Howard Halpern.

Are there any internal expansion initiatives that you’re looking to advance such as development of your own Malu library and/or expand your artificial intelligence capabilities into new product offerings outside of drug development..

Thanks, Howard. We have a R&D strategy and are looking at both the advancement of our existing products as well as extensions thereof like that which we delivered this past year with the AIDD module, and always exploring other areas. Our focus in the health care market is pretty strong.

It’s a market that requires a lot of domain experience in order to apply modeling and simulation technologies, techniques and that is where the vast majority of our business is. Obviously, the value of the AI and data mining technology that we developed may have benefits elsewhere.

And in those adjacent markets to our business and the consumer agribusiness area, we do have some clients in that space. And there may be value for that technology in the long run in other markets. We’ve got a lot of opportunity in the market we play in right now and focus our efforts pretty much in that arena..

Thank you, Shawn. We do have one additional question here as far as the written questions.

With the recent capital raise, what is your current acquisition strategy? What are you looking for as an acquisition target at this point?.

Well, as I pretty consistently stated out there, we’re looking for acquisitions that can increase our offering to our clients and the value of the modeling and simulation suite of products as well as services that we can offer to them to enhance our position as a strategic vendor for them.

So our targets out there are acquisition opportunities consist both in the software side as well as the service side number of products out there that fit into the continuum of modeling and simulation through the drug development cycle. Some of them are small, probably medium size.

Many of them are small, which would add functionality to our existing products, a number of opportunities in that direction. On the service side, the opportunity is to accelerate the expansion of our capacity. But probably more importantly, strategically from a geographical point of view.

We don’t have too many boots on the ground in Europe, and consulting staff in the Asian markets as well as the expansion of the types of services that we can offer. We brought a new service offering to the market this past year with the regulatory services by the hiring of Sandra Suarez-Sharp.

That as an example is achievable through acquisition as well in terms of practices that offer a type of service in the umbrella of modeling and simulation that we don’t currently offer to the marketplace.

So, I’m looking for opportunities that fit in from a culture point of view, from a product to the client point of view, but always underlying that companies that are accretive in nature and can be acquired at an appropriate valuation. That’s the framing of our work effort on the M&A side right now..

Thank you, Shawn. I do have Matt Hewitt with Craig-Hallum for the next question. I’ve got his line now. [Operator Instructions] Matt, you are live..

All right. Thanks so much and congratulations on achieving all of your targets for the year. So that’s especially given the environment, that’s not an easy task. Maybe first up regarding the – you are almost done with the first quarter here yet we’re also seeing a spike in coronavirus in many parts of the country.

Maybe what are you seeing here in the first quarter? Are you seeing that normal seasonality, where things start to pick up a little bit or because of the pandemic or is it still – are there still some puts and takes that you’re having to deal with?.

Well, yes, fair question, Matt, and welcome. I’m glad you got the pin. It’s good to hear your voice. I was imagining what your question would be. COVID has certainly reared its head and we’re seeing step back and lockdown and other responses around the world. I would characterize this as being an ongoing existing situation.

I don’t think it’s overly exaggerated by recent events, France locking down over the last few weeks, as an example. Operationally, our group at Lixoft is under that lockdown continue to work well, work from home.

From a customer point of view, I think we were operating in diminished stability to reach out and visit and meet with our clients face-to-face. This is conference season for our industry as well.

And so we’ve – those conferences have continued, but on a virtual format, which has provided some opportunity to interact within our industry, within our clients, but not fully as functional as a on-site conference situation.

So I wouldn’t say that anything of recently has changed it – it’s what we’ve been experiencing, though, for really since the March time frame of this year. So we continue for the one benefit, I think, is that the calendar year brings those budgetary cycles into play for our clients. And those budgetary cycles are playing out.

They’re affected by COVID in terms of their allocation to therapeutic areas, therapeutic programs.

But it’s a worthy endeavor from our perspective in the sense that upon the completion of those processes, they’ve established and set their budgets and we operate with a little bit more certainty as opposed to the last number of months have been uncertain as to what the budget impacts are going to be.

I’m always optimistic that you go through these cycles and then all the answers are there. I’m sure some cautiousness and wait and see will continue forth into the future, but I think it will bring some more definitive answers and game plans on the part of our clients for that we can respond to.

So toward the answer to your question is that while the environment externally has seemed to tick up in terms of COVID, I would say that for the most part, it’s the same as we’ve been experiencing since March..

Got it, okay. Thank you. And then shifting gears a little bit, I think you mentioned during your prepared remarks that at least on the consulting side, you had increased your staff by roughly 22% during the year. I’m just curious, as your business continues to grow and expand.

What does the talent pool look like? Are you still able to find the right people? And how is as bioinformatics, I guess, more broadly modeling as well, but as bioinformatics becomes a relatively hot market. It seems as of late.

Are you competing with others? What has that done from a cost perspective, any color along those lines?.

Yes, fair enough. It is a competitive market for the profile of scientists that we need in order to support our consulting efforts, support our software development side of our businesses as well and has been – always been competitive to the benefit, though, there certainly are more candidates of that profile available today than in the past.

But still, it’s a relative shortage in terms of the need out there that need that is sourced both from ourselves and our clients really looking for the staff. It does put pressure on the compensation side. It always has. But as you can see, we’ve held our margin pretty well in the consulting business pretty consistently at that 63% mark.

So we are able through efficiencies and passing on the cost to our clients, maintain our margins in that arena. So it continues to be a priority for us, a very important component of our business, our ability to attract new people.

But I’ve been very positive about our results and attracting some very significant people from academia in terms of people coming out to the marketplace from that world – from an industry where we cautiously, occasionally hire very good candidates from existing or potential clients out there.

And as well, others that compete with us for candidates and source some people from other consulting or other vendors to the industry.

So we’ve fared pretty well in this regard and look forward to continuing that effort, it’s an important one for us, but we’ve been able to meet our needs to date, and I fully anticipate that we’ll be able to meet our needs tomorrow and into the future..

That’s great. And then one last one for me and then I’ll hop back in the queue.

I think you had a slide commenting on a couple of successes you had during the quarter where you announced via press release that both with the FDA and getting drugs approved or drugs that may be competing drugs had failed and you were able to help a client get something through and to approval.

Maybe – what – is it possible to quantify the importance of those types of events? And I mean, if you look at historically, can you tie those types of events with an uptick or an increase in adoption within quarters or within a year or two of something like that happening? And what does – do these recent success stories maybe mean for fiscal 2021 and 2022 as you look out over the next couple of years? Thank you..

Sure, Matt. Maybe if we dedicated a few of our scientists to modeling the announcements in the follow-on effects, maybe I’d be in better position to answer the question on a metric basis. I can say this, but these are the types of announcements that garner the attention in industry, our clients in terms of the value.

And yes, it’s been a very successful quarter in regard to some of the impacts that DILIsym has had on very specific drugs. The advancement of drugs to the market that otherwise may not have even made it into clinical, Phase 3 clinical trials.

How do you calculate the ROI there? Well, you can take that entire drug’s revenue stream and say that may not have existed had it not been for the confidence that we were able to provide the client and taking that drug into clinic. So the magnitude can be big.

It expands those in industry that are looking to apply modeling and simulation, not only in the specific only in the specific target area that an announcement of that might make. But it more broadly opens up eyes into how else can we play modeling and simulation in other areas.

And as those use cases increase, the demand for our software products so that our clients can perform these analysis themselves or the demand for our consulting practice for us to come in and perform on behalf of our clients. It all – those all provide wind in the sale for us going forward.

The attention at speed to market has gotten based upon the pandemic is when I went through the pros and cons and look for the silver lining, the highlight that it’s the spot line it’s shown on the timeframes that are required to bring drug to the market and the desire to do so more rapidly and well-positioned.

We’re one of those new techniques, new abilities to accelerate that timeframe of getting a drug to market. And I think we’ll continue to benefit from that as we go forward in the future..

Thank you, Shawn. That appears to be out of questions today. I’ll turn it back over to you for follow-up comments..

Very good. Well, I appreciate everyone’s attention. Be safe, everyone, and I look forward to – yes, we are well through our first quarter, and I look forward to reporting to you very soon first quarter fiscal year 2021 results in January. Take care, everyone..

And this does conclude today’s conference call and webinar. If you missed any part of today’s presentation, the replay will be available at our website, www.simulations-plus.com. Thank you..