Simulations Plus, Inc. :SLP-US: Earnings Analysis: 2017 By the Numbers : November 17, 2017

Simulations Plus, Inc. reports financial results for the year ended August 31, 2017.

We analyze the earnings along side the following peers of Simulations Plus, Inc. – Authentidate Holding Corp., Quality Systems, Inc., Allscripts Healthcare Solutions, Inc. and Medidata Solutions, Inc. (ADAT-US, QSII-US, MDRX-US and MDSO-US) that have also reported for this period.


  • Gross margins narrowed from 76.96% to 73.87% compared to the same period last year, operating (EBITDA) margins now 43.08% from 45.88%.
  • Year-on-year change in operating cash flow of 27.01% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings rose compared to same period last year, despite decline in operating and pretax margins.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017 2016 2015 2014 2013
Relevant Numbers (Annual)
Revenues 24.14 19.97 18.31 11.46 10.07
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings 5.79 4.95 3.84 3.03 2.89
Earnings Growth (YOY) 16.92 28.81 27.02 4.81 2.65
Net Margin 23.98 24.79 20.98 26.4 28.66
EPS 0.33 0.29 0.23 0.18 0.18
Return on Equity 23.85 23.42 21.98 20.39 19.65
Return on Assets 17.45 17.95 15.9 16.33 17.28

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Earnings Growth Analysis

The company’s earnings rose year-on-year. But this growth has not come as a result of improvement in gross margins or any cost control activities in its operations. Gross margins went from 73.87% to 76.96% for the same period last year, while operating margins (EBITDA margins) went from 43.08% to 45.88% over the same time frame.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

SLP-US’s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days are now 160.29 days from 169.00 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

SLP-US’s change in operating cash flow of 27.01% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings


Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company’s earnings rose.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Simulations Plus, Inc. engages in licensing and conducting drug research by pharmaceutical and biotechnology companies. Its services include consulting services, modeling and analysis or simulation, pharcometric data assembly, and training and workshops. The company was founded by Walter S. Woltosz and Virginia E. Woltosz on July 17, 1996 and is headquartered Lancaster, CA.

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