Simulations Plus, Inc. :SLP-US: Earnings Analysis: Q1, 2018 By the Numbers : January 19, 2018

Simulations Plus, Inc. reports financial results for the quarter ended November 29, 2017.

Highlights

  • Summary numbers: Revenues of USD 7.07 million, Net Earnings of USD 1.72 million.
  • Gross margins widened from 75.34% to 75.45% compared to the same period last year, operating (EBITDA) margins now 45.30% from 45.11%.
  • Change in operating cash flow of 35.95% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • One-time items weakened operating performance.

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

2017-11-29 2017-08-30 2017-05-30 2017-02-27 2016-11-29
Relevant Numbers (Quarterly)
Revenues (mil) 7.07 6.27 6.75 5.71 5.42
Revenue Growth (%YOY) 30.47 58.33 12.25 10.49 11.97
Earnings (mil) 1.72 1.15 2.08 1.2 1.36
Earnings Growth (%YOY) 26.03 45.79 8.94 4.4 23.06
Net Margin (%) 24.28 18.36 30.82 20.96 25.13
EPS 0.1 0.06 0.12 0.07 0.08
Return on Equity (%) 6.54 4.51 8.47 5.06 5.91
Return on Assets (%) 17.54 13.52 28.54 16.71 19.34

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, SLP-US’s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if SLP-US’s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 12.81% and earnings by 49.19% compared to the previous period.

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 75.34% to 75.45% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 45.11% to 45.30% compared to the same period last year. For comparison, gross margins were 68.51% and EBITDA margins were 32.46% in the last reporting period.

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 improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days are now 122.03 days compared to 184.28 days for the same period last year.

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 year-on-year change in operating cash flow of 35.95% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The expansion in operating (EBIT) margins from 35.59% to 36.27% has also impacted the company’s earnings growth. However, one-time items have been a drag on the operating performance. As a result, the company’s pretax margins contracted from 36.31% to 35.61%.

EBIT Margin History
PreTax Margin History

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Company Profile

Simulations Plus, Inc. (Simulations Plus) develops and produces software for use in pharmaceutical research and for education, and provides consulting and contract research services to the pharmaceutical industry. The Company offers five software products for pharmaceutical research. ADMET (Absorption, Distribution, Metabolism, Excretion and Toxicity) Predictor is a computer program that takes molecular structures as inputs and predicts over 140 different properties for them at the rate of about 200,000 compounds per hour. MedChem Designer includes a small set of ADMET Predictor property predictions, allowing the chemist to modify molecular structures. MedChem Studio is a tool for medicinal and computational chemists for both data mining and for designing new drug-like molecules. DDDPlus simulates in-vitro laboratory experiments used to measure the rate of dissolution of the drug. GastroPlus simulates the absorption, pharmacokinetics, and pharmacodynamics of drugs.

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