After releasing its Q1 2020 earnings report last week, the stock price of Simulations Plus (SLP) jumped higher. The company beat analyst forecasts by $0.02, with earnings coming in at $0.11 per share versus estimates of $0.09.
In the conference call following the earnings release, CEO Shawn O’Connor detailed the excellent quarter and shed some light on where the company sees growth moving forward.
O’Connor said the quarterly results were due to a combination of “unanticipated client-driven accelerated timing on several projects”, a ramping up of sales efforts on the part of Simulations Plus, and continued use of a unique collaboration model the company employs.
On the client front, 25% revenue growth was a combination of 12% growth in the software business and 40% growth in consulting numbers. O’Connor attributed the consulting growth to client acceleration of projects, and said revenue growth should be in the 15% to 20% range for the rest of 2020.
While the consulting business carries a lower margin than software, the company was still able to achieve gross margins of 72%, which was in line with previous quarters.
O’Connor stated, “This result supports our belief that we can maintain or improve overall gross margin despite changes in revenue mix, and the cost of personnel through price management and operational efficiencies.”
Turning his focus to sales and marketing, the CEO said these numbers ran 3-4% points higher in the latest quarter, due to an increased allocation of resources to SG&A. This brought SG&A expenses to around 35% of total revenue, which will likely persist throughout 2020 before dropping back to the low 30% range next year.
But, even with the increased SG&A spending, as a percentage of revenue the number actually declined as a result of revenue increasing more quickly than SG&A spend.
Finally, Simulations Plus expanded its collaboration model for software and product development with a number of high profile clients. Using collaborative projects, which are partially funded by the client for which the project is initially intended, allows the company to offset costs.
“These collaborations continue our history of leveraging client input and funding to enhance and reduce the overall R&D costs associated with maintaining our industry-leading software products,” noted O’Connor.
Among the four collaboration projects described, one was with Bayer, and the other three were with major unnamed pharmaceutical companies. The collaborations should positively impact three of the company’s major software products.
Steven Adams’s personal position in Simulations Plus: none.
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