Forward-Looking Statements
This document and the documents incorporated in this document by reference
contain forward-looking statements that are subject to risks and uncertainties.
All statements other than statements of historical fact contained in this
document and the materials accompanying this document are forward-looking
statements.
The forward-looking statements are based on the beliefs of our management, as
well as assumptions made by and information currently available to our
management. Frequently, but not always, forward-looking statements are
identified by the use of the future tense and by words such as "believes,"
expects," "anticipates," "intends," "will," "may," "could," "would," "projects,"
"continues," "estimates" or similar expressions. Forward-looking statements are
not guarantees of future performance and actual results could differ materially
from those indicated by the forward-looking statements. Forward-looking
statements involve known and unknown risks, uncertainties, and other factors
that may cause our or our industry's actual results, levels of activity,
performance, or achievements to be materially different from any future results,
levels of activity, performance, or achievements expressed or implied by the
forward-looking statements.
The forward-looking statements contained or incorporated by reference in this
document are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended ("Securities Act") and Section 21E of the
Securities Exchange Act of 1934, as amended ("Exchange Act") and are subject to
the safe harbor created by the Private Securities Litigation Reform Act of 1995.
These statements include declarations regarding our plans, intentions, beliefs,
or current expectations.
Among the important factors that could cause actual results to differ materially
from those indicated by forward-looking statements are the risks and
uncertainties described under "Risk Factors" in our Annual Report on Form 10-K
for the year ended August 31, 2020 filed with the Securities and Exchange
Commission ("SEC") on November 16, 2020 and elsewhere in this document and in
our other filings with the SEC.
Forward-looking statements are expressly qualified in their entirety by this
cautionary statement. The forward-looking statements included in this document
are made as of the date of this document and we do not undertake any obligation
to update forward-looking statements to reflect new information, subsequent
events, or otherwise.
General
BUSINESS
OVERVIEW
Simulations Plus, Inc., incorporated in 1996, is a premier developer of modeling
and simulation software for drug discovery and development, including the
prediction of properties of molecules utilizing artificial-intelligence- and
machine-learning-based technology. We also provide consulting services ranging
from early drug discovery through preclinical and clinical trial development to
regulatory submissions in support of product approval. Our software and
consulting services are provided to major pharmaceutical, biotechnology,
agrochemical, cosmetics, and food industry companies and to academic and
regulatory agencies worldwide for use in the conduct of industry-based research.
SLP is headquartered in Southern California, with offices in Buffalo, NY,
Research Triangle Park, NC, and Paris, France. Our common stock trades on the
Nasdaq Capital Market under the symbol "SLP".
We are a global leader focused on improving the ways scientists use knowledge
and data to predict the properties and outcomes of pharmaceutical and
biotechnology agents by providing a wide range of early discovery, preclinical,
and clinical consulting services and software. Our innovations in integrating
new and existing science in medicinal and computational chemistry,
pharmaceutical science, biology, physiology, and machine learning into our
software have enabled us to be a leading software provider for physiologically
based pharmacokinetics "(PBPK") modeling and simulation, pharmacometric modeling
and simulation, prediction of molecular properties from structure, and
prediction of the propensity of drugs to induce liver injury or to treat
nonalcoholic fatty liver disease. Our scientific consulting staff draw upon
extensive experience across multiple therapeutic areas and a full range of
modeling and simulation techniques to assist our clients across the full
spectrum of drug development.
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We generate revenue by delivering relevant, cost-effective software and creative
and insightful consulting services. Pharmaceutical and biotechnology companies
use our software programs and scientific consulting services to guide early drug
discovery (molecule design screening and lead optimization), preclinical, and
clinical development programs, including using our software products and
services to enhance their understanding of the properties of potential new
medicines and to use emerging data to improve formulations, select and justify
dosing regimens, support the generics industry, optimize clinical trial designs,
and simulate outcomes in special populations, such as in elderly and pediatric
patients.
Simulations Plus acquired Cognigen Corporation (Cognigen) as a wholly owned
subsidiary in September 2014. Cognigen was originally incorporated in 1992.
Through the integration of Cognigen into Simulations Plus, Simulations Plus
became a leading provider of population modeling and simulation contract
research services for the pharmaceutical and biotechnology industries. Our
clinical-pharmacology-based consulting services include pharmacokinetic and
pharmacodynamic modeling, clinical trial simulations, data programming, and
technical writing services in support of regulatory submissions. We have also
developed software for harnessing cloud-based computing in support of modeling
and simulation activities and secure data archiving, and we provide consulting
services to improve interdisciplinary collaborations and research and
development productivity.
Simulation Plus acquired DILIsym Services, Inc. (DILIsym) as a wholly owned
subsidiary in June 2017. The acquisition of DILIsym positioned us as the leading
provider of Drug Induced Liver Injury (DILI) modeling and simulation software
and related scientific consulting services. In addition to the DILIsym® software
for analysis of potential drug-induced liver injury, DILIsym also has developed
a simulation program for analyzing nonalcoholic fatty liver disease (NAFLD)
called NAFLDsym™. Both the DILIsym and NAFLDsym software programs require
outputs from PBPK software as inputs. Outputs generated by the GastroPlus™ PBPK
software that are required by DILIsym software can be automatically mapped to
DILIsym applications; thus, the integration of these technologies provides a
seamless capability for analyzing the potential for drug-induced liver injury
for new drug compounds and for investigating the potential for new therapeutic
agents to treat NAFLD. Since the acquisition, DILIsym has applied its
mechanistic modeling resources in other disease areas including idiopathic
pulmonary fibrosis (IPF).
Simulations Plus acquired Lixoft as a wholly owned subsidiary on April 1, 2020.
Lixoft brings to Simulations Plus its powerful software products, Monolix,
Simulx and PKanalix, which can take modeling projects from data exploration to
clinical trial simulations. In addition, Lixoft provides training and focused
consulting services which can accelerate pharmacometric studies. Lixoft's
technologies were developed as a result of a research program led by the French
national research institute for digital science and technology (Inria), on
nonlinear mixed effect models for advanced population analysis, pharmacometrics,
pre-clinical, and clinical trial modeling and simulation. Lixoft continues to
work with Inria.
PRODUCTS
General
We currently offer eleven software products for pharmaceutical research and
development: five simulation programs that provide time-dependent results based
on solving large sets of differential equations: GastroPlus; DDDPlus™;
MembranePlus™; DILIsym; and NAFLDsym®; three programs that are based on
predicting and analyzing static (not time-dependent) properties of chemicals:
ADMET Predictor; MedChem Designer™; and MedChem Studio™ (the combination of
ADMET Predictor, MedChem Designer, and MedChem Studio is called our ADMET Design
Suite); a program which is designed for rapid clinical trial data analysis and
regulatory submissions called PKPlus™; a cloud-based communication and
collaboration platform for exploratory data analysis, population PK/PD modeling
and reporting called KIWITM; and in April 2020 with the acquisition of Lixoft,
we added the Monolix Suite of products - a modeling and simulation solution that
allows nonparametric analyses, population PKPD analyses, and modeling and
clinical trial simulation.
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Software business
Our software business represented 59% of our total revenue during the first six
months of fiscal year 2021, and was primarily generated by the following
products:
GastroPlus®
Our flagship product, originally introduced in 1998, and currently our largest
single source of software revenue, is GastroPlus. GastroPlus mechanistically
simulates the absorption, pharmacokinetics, pharmacodynamics, and drug-drug
interactions (DDI) of compounds administered to humans and animals and is
currently one of the most widely used commercial software of its type by
industry, the U.S. Food and Drug Administration (FDA), the U.S. National
Institutes of Health (NIH), and other government agencies in the U.S. and around
the world. In February 2021, GastroPlus version 9.8.1, which included new
mechanisms and updated documentation for key DDI standards models, was released.
ADMET Predictor®
ADMET Predictor is a top-ranked, chemistry-based computer program that takes
molecular structures (i.e., drawings of molecules represented in various
formats) as inputs and uses artificial intelligence/machine learning
technologies to predict approximately 175 different properties for them at an
average rate of over 200,000 compounds per hour on a modern laptop computer.
This capability allows chemists to generate estimates for a large number of
important molecular properties without the need to synthesize and test the
molecules, as well as to generate estimates of unknown properties for molecules
that have been synthesized, but for which only a limited number of experimental
properties have been measured. In September 2020, ADMET Predictor® Version 10.0
(APX), which integrates Artificial Intelligence-driven Drug Design (AIDD) with
PBPK, was released.
DILIsym®
The DILIsym software is a quantitative systems pharmacology ("QSP") program that
was introduced in 2011. QSP software models are based on the fundamental
understanding of complex biological pathways, disease processes, and drug
mechanisms of action, integrating information from experiments and forming
hypotheses for the next experimental model. DILIsym deals with the propensity
for some drug molecules to induce temporary or permanent changes in biological
functions within liver cells (hepatocytes) that can result in damage to the
liver (i.e., drug-induced liver injury or DILI).
Monolix Suite™
The Monolix Suite is a unique solution for modeling and simulation for
pharmaceutical companies, biotechs, and hospitals. It supports nonparametric
analyses, population PKPD analyses and modeling, and clinical trial simulation.
The extended MonolixSuite contains three main products: Monolix, Simulx, and
PKanalix. These products are interconnected and interoperable, i.e., allowing
users to go from one application to another one without changing anything in
terms of data set or of biological models. Monolix 2020R1 was released in
November 2020, which combines the most advanced algorithms with unique ease of
use.
Consulting Services
Our consulting business represented 41% of our total revenue during the first
six months of fiscal year 2021, and was primarily generated by the following
services:
PKPD
Our clinical-pharmacology-based consulting services include population
pharmacokinetic and pharmacodynamic modeling, exposure-response analyses,
clinical trial simulations, data programming, and technical writing services in
support of regulatory submissions. In addition to modeling and simulation
consulting services, we provide expertise and assistance with
development-related decision making and support for regulatory interactions
related to dose selection, clinical trial design, and understanding of the
determinants of safety and efficacy for new medicines.
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QSP/QST
We providecreative and insightful consulting services to support our QSP/QST
modeling focused on heart failure, liver safety, and radiation syndrome, as well
as other areas. Pharmaceutical and biotechnology companies use our scientific
consulting services to guide early drug discovery (molecule design screening and
lead optimization), preclinical, and clinical development programs. This
includes using our software products and services to enhance their understanding
of the properties of potential new medicines and to use emerging data to improve
formulations, select and justify dosing regimens, support the generics industry,
optimize clinical trial designs, and simulate outcomes in special populations,
such as in elderly and pediatric patients.
PBPK
Beginning in 2014, the FDA and other regulatory agencies began to emphasize the
need to encourage mechanistic PBPK modeling and simulation in clinical
pharmacology, with final guidance documents completed in 2018. New draft
guidance documents were released in October 2020 focused on additional
applications for biopharmaceuticals. This has resulted in an increased need for
us to provide consulting-related services to support this sophisticated
technique. We support Model Informed Drug Discovery and Development throughout
the entire product lifecycle: from discovery through translation research and
clinical development when an organization does not have the time or resources to
use our software, directly. More specifically, our clients seek out our
consulting services to acquire scientific, therapeutic-area-related modeling and
simulation expertise that they do not have in-house.
Summary Results of Operations
Three Months Ended February 28, 2021 compared with Three Months Ended February
29, 2020:
(in thousands) Three Months Ended
February 28, February 29,
2021 2020 $ Change % Change
Revenues $ 13,147 $ 10,350 $ 2,797 27 %
Cost of revenues 2,911 2,666 245 9
Gross margin 10,236 7,684 2,552 33
Selling, general and
administrative 5,458 4,110 1,348 33
Research and development 1,292 748 544 73
Total operating expenses 6,750 4,858 1,892 39
Income from operations 3,486 2,826 660 23
Other income (expense) (63 ) 10 (73 ) (730 )
Income before provision for
income taxes 3,423 2,836 587 21
(Provision for) income taxes (212 ) (686 ) 474 (69 )
Net income $ 3,211 $ 2,150 $ 1,061 49 %
Revenues
Consolidated revenues increased by $2.8 million or 27% to $13.1 million for the
three months ended February 28, 2021 compared to consolidated revenue of
approximately $10.3 million for the three months ended February 29, 2020. This
increase is primarily due to a $2.4 million or 45% increase in consolidated
software-related revenue, and a $0.4 million or 7% increase in consolidated
consulting and analytical study revenues when comparing the three months ended
February 28, 2021 and February 29, 2020.
Cost of Revenues
Consolidated cost of revenues increased by $0.2 million, or 9%, to $2.9 million
for the three months ended February 28, 2021 compared to $2.7 million for the
three months period ended February 29, 2020. The increase is primarily due to a
$0.2 million or 9% increase in labor-related contract research organization fees
for the DILIsym division.
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Gross Margin
Consolidated gross margin increased by approximately $2.5 million or 33% to
$10.2 million for the three months ended February 28, 2021 compared to $7.7
million for the three months ended February 29, 2020. The higher gross margin is
primarily due to the addition of the Lixoft division, which contributed $1.4
million to the increase, as well as the Simulations Plus division's gross margin
increase of $0.8 million or 16%. The gross margin for the Cognigen and DILIsym
Divisions both increased by approximately $0.2 million, respectively, for the
quarter.
Overall gross margin percentage increased by 4% to 78% for the three months
ended February 28, 2021 from 74% for the three months period ended February 29,
2020.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses increased by approximately $1.4
million, or 33% to $5.5 million for the three months period ended February 28,
2021 from $4.1 million for the three months period ended February 29, 2020. As a
percent of revenues, Selling, general, and administrative expense increased from
40% to 42% for the same comparative periods.
The increase in Selling, General, and Administrative expense was primarily due
to the following:
· Salaries and wages increased by $0.7 million due to higher corporate
salaries, bonuses, and severance costs, as well as an increase in headcount
and higher contract labor costs;
· Payroll tax expense increased $0.3 million due to higher headcount and
wages;
· Insurance expense increased by $0.1 million due to cost increases, higher
employee counts and increased liability-related insurance.
Research and Development Costs
Total research and development costs increased by $0.7 million for the three
months ended February 28, 2021 compared to the three months ended February 29,
2020. During the second quarter of fiscal year 2021, we incurred approximately
$2.0 million of research and development costs; of this amount, $0.7 million was
capitalized and $1.3 million was expensed. For the three months ended February
29, 2020, we incurred approximately $1.3 million of research and development
costs; of this amount, approximately $0.6 million was capitalized and
approximately $0.7 million was expensed.
Other Income (Expense)
Total other expense was $63 thousand for the three months ended February 28,
2021 compared to total other income of $10 thousand for the three months ended
February 29, 2020. The variance of $73 thousand is primarily due to a change in
the valuation of contingent consideration, partially offset by an increase in
interest income resulting from short-term investments.
Provision for Income Taxes
The provision for income taxes was $0.2 million for the three months ended
February 28, 2021 compared to $0.7 million for the same period in the previous
year. Our effective tax rate decreased 18.0% to 6.2% for the three months ended
February 28, 2021 from 24.2% during the same period of the previous year
primarily due to the disqualified disposition of options exercised.
30
Six Months Ended February 28, 2021 compared with Six Months Ended February 29,
2020:
(in thousands) Six Months Ended
February 28, February 29,
2021 2020 Change ($) Change (%)
Revenues $ 23,848 $ 19,751 $ 4,097 21 %
Cost of revenues 5,344 5,309 35 1
Gross margin 18,504 14,442 4,062 28
Selling, general and
administrative 9,866 7,623 2,243 29
Research and development 2,101 1,274 827 65
Total operating expenses 11,967 8,897 3,070 35
Income from operations 6,537 5,545 992 18
Other income (expense) (118 ) 24 (142 ) (592 )
Income before provision for
income taxes 6,419 5,569 850 15
Provision for income taxes (729 ) (1,361 ) 632 (46 )
Net income $ 5,690 $ 4,208 $ 1,482 35 %
Revenues
Consolidated revenues increased by$4.1 million or 21% to $23.8 million for the
six months ended February 28, 2021 compared to approximately $19.7 million for
the six months ended February 29, 2020.
This increase is primarily due to a $4.0 million or 40% increase in consolidated
software-related revenue when comparing the six months ended February 28, 2021
and February 29, 2020.
Cost of Revenues
Consolidated cost of revenues increased slightly for the six months ended
February 28, 2021 compared to the six months ended February 29, 2020. The
increase is primarily due to higher amortization of software development costs
with the purchase of Lixoft, offset by lower salary contracts for the Cognigen
division.
Gross Margin
Consolidated gross margin increased $4.1 million or 28% to $18.5 million for the
six months ended February 28, 2021 compared to $14.4 million for the six months
ended February 29, 2020.
The higher gross margin is primarily due to the addition of the Lixoft division,
which contributed $2.5 million to the increase, as well as the Simulations Plus
division's gross margin increase of $1.4 million or 15%. The Cognigen Division
gross margin increased $0.6 million or 22%. This was offset by a decrease for
DILIsym Divisions' gross margin of $0.3 million or 11% for the quarter.
Overall gross margin percentage increased by 5% to 78% for the six months ended
February 28, 2021 from 73% for the six months ended February 29, 2020.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses increased $2.2 million, or 29% to
$9.9 million for the six months ended February 28, 2021 from approximately $7.7
million for the six months ended February 29, 2020. As a percent of revenues,
Selling, general, and administrative expense increased from 39% to 41% for the
same comparative periods.
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The increase in Selling, General, and Administrative expense was primarily due
to the following:
· Salaries and wage increased by $1.1 million due to higher corporate
salaries, bonuses, and severance costs, as well as an increase in headcount
and higher contract labor costs;
· Payroll tax expense increased $0.5 million due to higher headcount and
wages;
· Insurance expense increased by $0.2 million due to cost increases, higher
employee counts and increased liability-related insurance;
· Professional fees increased by $0.2 million primarily due to higher
accounting costs.
Research and Development Costs
Total research and development costs increased by $1.1 million for the six
months ended February 28, 2021 compared to the six months ended February 29,
2020. During the first two quarters of fiscal year 2021, we incurred
approximately $3.5 million of research and development costs; of this amount,
$1.4 million was capitalized and $2.1 million was expensed. For the six months
ended February 29, 2020 we incurred approximately $2.4 million of research and
development costs; of this amount, $1.1 million was capitalized and $1.3 million
was expensed.
Other Income (Expense)
Total other expense was $118 thousand for the six months ended February 28, 2021
compared to total other income of $24 thousand for the six months ended February
29, 2020. The variance of $142 thousand is primarily due to a change in the
valuation of contingent consideration, partially offset by an increase in
interest income resulting from short-term investments.
Provision for Income Taxes
The provision for income taxes was $0.7 million for the six months ended
February 28, 2021 compared to $1.4 million for the same period in the previous
year. Our effective tax rate decreased 13.0% to 11.4% for the six months ended
February 28, 2021 from 24.4% during the same period of the previous year
primarily due to the disqualified disposition of options exercised.
Segment Results of Operations
Three Months Ended February 28, 2021 compared with Three Months Ended February
29, 2020:
Revenues
(in thousands) Three Months Ended
February 28, February 29,
2021 2020 Change ($) Change (%)
Simulations Plus $ 6,646 $ 5,904 $ 742 13 %
Cognigen 2,783 2,750 33 1
DILIsym 2,114 1,696 418 25
Lixoft* 1,604 - 1,604 100
Total $ 13,147 $ 10,350 $ 2,797 27 %
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Cost of Revenues
(in thousands) Three Months Ended
February 28, February 29,
2021 2020 Change ($) Change (%)
Simulations Plus $ 773 $ 846 $ (73 ) (9 )%
Cognigen 1,224 1,341 (117 ) (9 )
DILIsym 725 479 246 51
Lixoft* 189 - 189 100
Total $ 2,911 $ 2,666 $ 245 9 %
Gross Margin
(in thousands) Three Months Ended
February 28, February 29,
2021 2020 Change ($) Change (%)
Simulations Plus $ 5,873 $ 5,058 $ 815 16 %
Cognigen 1,559 1,409 150 11
DILIsym 1,389 1,217 172 14
Lixoft* 1,415 - 1,415 100
Total $ 10,236 $ 7,684 $ 2,552 33 %
*Lixoft was acquired on April 1, 2020.
Simulations Plus
For the three months ended February 28, 2021, the revenue increase of $0.7
million or 13%, compared to the three months ended February 29, 2020 was
primarily due to higher sales from GastroPlus ($0.5 million) and ADMET Software
($0.2 million). Cost of revenue decreased $0.1 million during the same periods
and gross margin increased $0.8 million or 16%, primarily due to the change in
revenue.
Cognigen
For the three months ended February 28, 2021, revenue increased marginally
compared to the three months ended February 29, 2020. Cost of revenues decreased
$0.1 million or 9%, primarily due to a reduction in salaries. Gross margin
increased $0.2 million or 11%, primarily due to the decrease in the cost of
revenues.
DILIsym
For the three months ended February 28, 2021, the revenue increase of $0.4
million or 25% compared to the three months ended February 29, 2020 was
primarily due to higher revenue from DILIsym consulting services of $0.3
million. Cost of revenue increased $0.2 million or 51%, primarily due to an
increase in contract research organization fees. Gross margin increased $0.2
million or 14%.
Lixoft
For the three months ended February 28, 2021, the revenue increase of $1.6
million compared to the three months ended February 29, 2020 was primarily due
to the purchase of Lixoft on April 1, 2020. Software sales of Monolix Suite
generated 97% of total revenue and 3% was generated from consulting services.
Cost of revenue and gross margin increases of $0.2 million and $1.4 million,
respectively, were both due to the purchase of Lixoft on April 1, 2020.
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Six Months Ended February 28, 2021 compared with Six Months Ended February 29,
2020:
Revenues
(in thousands) Six Months Ended
February 28, February 29,
2021 2020 Change ($) Change (%)
Simulations Plus $ 12,078 $ 10,830 $ 1,248 12 %
Cognigen 5,451 5,137 314 6
DILIsym 3,486 3,784 (298 ) (8 )
Lixoft* 2,833 - 2,833 100
Total $ 23,848 $ 19,751 $ 4,097 21 %
Cost of Revenues
(in thousands) Six Months Ended
February 28, February 29,
2021 2020 Change ($) Change (%)
Simulations Plus $ 1,484 $ 1,591 $ (107 ) (7 )%
Cognigen 2,370 2,611 (241 ) (9 )
DILIsym 1,110 1,107 3 -
Lixoft* 380 - 380 100
Total $ 5,344 $ 5,309 $ 35 1 %
Gross Margin
(in thousands) Six Months Ended
February 28, February 29,
2021 2020 Change ($) Change (%)
Simulations Plus $ 10,594 $ 9,239 $ 1,355 15 %
Cognigen 3,081 2,526 555 22
DILIsym 2,376 2,677 (301 ) (11 )
Lixoft* 2,453 - 2,453 100
Total $ 18,504 $ 14,442 $ 4,062 28 %
*Lixoft was acquired on April 1, 2020.
Simulations Plus
For the six months ended February 28, 2021, the revenue increase of $1.2 million
or 12% compared to the six months ended February 29, 2020 was primarily due to
higher sales from GastroPlus ($0.9 million) and ADMET Software ($0.3 million).
Cost of revenue decreased $0.1 million or 7% during the same periods, and gross
margin increased $1.4 million or 15%, primarily due to the change in revenue.
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Cognigen
For the six months ended February 28, 2021, the revenue increase of $0.3 million
or 6% compared to the six months ended February 29, 2020 was primarily due to an
increase in grant revenue. Cost of revenue decreased $0.2 million or 9%,
primarily due to a reduction in salaries during the same periods. Gross margin
increased by approximately $0.6 million or 22%.
DILIsym
For the six months ended February 28, 2021, the revenue decrease of $0.3 million
or 8% compared to the six months ended February 29, 2020 was primarily due to
lower revenue from DILIsym consulting services. Cost of revenue increased
slightly during the same periods. Gross margin decreased $0.3 million or 11%,
primarily due to the change in revenue.
Lixoft
For the six months ended February 28, 2021, the revenue increase of $2.8 million
compared to the six months ended February 29, 2020 was due to the purchase of
Lixoft on April 1, 2020. Software sales of Monolix Suite generated 96% of total
revenue and 4% was generated from consulting services. Cost of revenue increased
$0.4 million, and gross margin was $2.5 million due to the purchase of Lixoft on
April 1, 2020.
Liquidity and Capital Resources
Historically, liquidity is provided by available cash and cash equivalents, cash
generated from operations and access to capital markets.
In August 2020, we closed an underwritten public offering of 2,090,909 shares of
our common stock to the public at $55.00 per share, which included the full
exercise of the underwriters' option to purchase 272,727 additional shares of
common stock. The aggregate gross proceeds to us from this offering were
approximately $115 million, before deducting underwriting discounts and
commissions; net proceeds were approximately $107.7 million. The offering was
made pursuant to our automatic shelf registration statement on Form S-3 filed
with the SEC on July 9, 2020.
On March 31, 2020, we entered into a Stock Purchase and Contribution Agreement
(the "Agreement") with Lixoft. On April 1, 2020, we completed the acquisition of
all outstanding equity interests of Lixoft pursuant to the terms of the
Agreement, with Lixoft becoming our wholly owned subsidiary. We believe the
combination of Simulations Plus and Lixoft provides substantial future potential
based on the complementary strengths of each of the companies. Under the terms
of the Agreement, we agreed to pay the former shareholders of Lixoft total
consideration of up to $16.5 million, consisting of two-thirds cash and
one-third newly issued, unregistered shares of our common stock. At closing, we
paid the former shareholders of Lixoft a total of $10.8 million, comprised of
cash in the amount of $9.5 million and the issuance of 111,682 shares of our
common stock valued at $3.7 million, net of adjustments and a holdback for
representations and warranties. In addition, we paid $3.5 million of excess
working capital based on the March 31, 2020 financial statements of Lixoft. In
addition, the Agreement calls for earnout payments up to an additional $5.5
million, two-thirds cash and one-third newly issued, unregistered shares of our
common stock based on a revenue growth formula each year for the two years
subsequent to April 1, 2020. The former shareholders can earn up to $2 million
the first year and $3.5 million in year two. See Note 12, Acquisition, to our
condensed consolidated financial statements included in this Quarterly Report on
Form 10-Q for a further description of the Agreement.
Operating Activities
Net cash provided by operating activities was $6.6 million for the six months
ended February 28, 2021. Our operating cash flows resulted primarily from our
net income of $5.7 million, which was generated by cash received from our
customers, offset by cash payments we made to third parties for their services
and employee compensation. In addition, net cash outflow from changes in
balances of operating assets and liabilities was $3.7 million, offset by
non-cash charges of $4.6 million. The change in operating assets and liabilities
was primarily a result of an increase in accounts receivable.
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Net cash provided by operating activities was $3.8 million for the six months
ended February 29, 2020. Our operating cash flows resulted primarily from our
net income of $4.2 million, which was generated by cash received from our
customers, offset by cash payments we made to third parties for their services
and employee compensation. In addition, net cash outflow from changes in balance
of operating assets and liabilities was $2.5 million, offset by non-cash charges
of $2.1 million. The change in operating assets and liabilities was primarily a
result of an increase in accounts receivable, revenue in excess of billings and
a decrease in deferred revenue, offset by an increase in accounts payable and a
decrease in prepaid income taxes.
Investing Activities
Cash used for investing activities during the six months ended February 28, 2021
of $11.9 million was primarily due to the purchase of short-term investments of
$40.8 million, the costs associated with the development of computer software of
$1.5 million and the purchase of equipment of $0.6 million, offset by the
proceeds from the sale of short-term investments of $31.0 million. Cash used for
investing activities during the six months ended February 29, 2020 of $1.2
million was primarily due to costs associated with the development of computer
software.
Financing Activities
For the six months ended February 28, 2021, net cash used by financing
activities of $1.6 million, was primarily driven by the payment of dividends
totaling $2.4 million, partially offset by proceeds from the exercise of stock
options totaling $0.8 million. Net cash used by financing activities for the
comparable period in fiscal year 2020 of $1.8 million, was primarily due to
dividend payments totaling $2.1 million, partially offset by proceeds of $0.3
million from the exercise of stock options.
Cash and Working Capital
Cash and cash equivalents were $42.4 million as of February 28, 2021 compared to
$49.2 million as of August 31, 2020.
At February 28, 2021, we had working capital of $129.0 million, a ratio of
current assets to current liabilities of 20.7 and a ratio of debt to equity of
0.1. At August 31, 2020, we had working capital of $123.6 million, a ratio of
current assets to current liabilities of 23.4 and a ratio of debt to equity of
0.1.
Based upon our current operating plans, we believe that our existing cash and
cash equivalents, together with anticipated funds from operations, will be
sufficient to meet our anticipated cash needs for working capital and capital
expenditures for the foreseeable future. Our forecast of the period of time
through which our financial resources will be adequate to support our operations
is a forward-looking statement that involves risks and uncertainties, and actual
results could vary materially. We have based this estimate on assumptions that
may prove to be wrong, and we could deplete our capital resources sooner than we
expect.
Critical Accounting Estimates
Our condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The preparation of the condensed consolidated financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the consolidated financial statements, and
the reported amounts of expenses during the reporting period. On an ongoing
basis, management evaluates its estimates and judgments, including those related
to recoverability and useful lives of long-lived assets, stock compensation,
valuation of derivative instruments, allowances, contingent consideration,
contingent value rights, fixed payment arrangements and going concern.
Management bases its estimates and judgments on historical experience and on
various other factors, including the COVID-19 pandemic, that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The methods, estimates, and
judgments used by us in applying these critical accounting policies have a
significant impact on the results we report in our condensed consolidated
financial statements. Our significant accounting policies and estimates are
included in our Annual Report on Form 10-K for the fiscal year ended August 31,
2020, filed with the SEC on November 16, 2020.
36
Information regarding our significant accounting policies and estimates can also
be found in Note 2, Significant Accounting Policies, to our condensed
consolidated financial statements included in Part I, Item 1 of this Quarterly
Report on Form 10-Q.
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