Tuesday, September 13, 2011

Simulations Plus ( Nasdaq - SLP ) -- Pre-announces Good Q4 (Aug.) Results

Simulations Plus (SLP $3.10) said Q4 (August) results would be good, but somewhat below our expectation.  The company operates two lines of business which are independent of each other.  The more dynamic pharmaceutical modeling segment produced another solid performance.  The company sells one year software licenses (four different products) which drug companies use to accelerate their R&D efforts.  Simulations Plus books the entire 12-month revenue in the period the contracts are signed.  While revenue fell on a sequential basis, that merely reflected the fact that fewer contracts come up for renewal in the summer.  In the year ago period Simulations Plus booked a major ($350,000) non recurring study, which discombobulated the year to year comparison.  No similar projects were performed in the latest quarter.  Actually, the company had a good quarter from a sales standpoint.  Twenty-four percent of revenue was generated by new customers.  That's on the high side from a historical perspective since most customers renew their software contracts routinely.  Dragging down the consolidated numbers was the Words Plus division, which sells text to speech and other communication devices for disabled people.  A new eye movement system was introduced in the period.  That product froze sales of existing products but didn't work its way through the distribution system in time to meaningfully impact revenues.  Improved performance appears likely in upcoming periods.

We have reduced our fiscal 2011 (August) earnings estimate by a penny to $.19 a share (non GAAP).  Next year $.23-$.25 a share appears a realistic target.  Simulations Plus recently finished an in house test project, using its software to develop a cure for malaria from scratch.  Customers currently employ the technology to narrow down their searches.  This is the first time anybody has identified a target disease and created an entirely new molecule to treat it straight out of the computer.  Simulations Plus came up with 12 candidates.  It plans to hire some outside labs to perform preliminary testing on them to determine if they have a shot.  Chances are these particular molecules won't provide the exact solution.  But they might be close enough to persuade the drug companies to adopt the approach, maybe come up with 120 candidates instead, and discover high potential drugs at a fraction of the current cost.

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