Wednesday, January 16, 2013

Simulations Plus ( Nasdaq - SLP ) -- Mediocre Performance Continues

Simulations Plus (SLP $4.20) reported lower than expected Q1 (November) results.  Performance was impacted by an unusually high number of site closures among the company's pharmaceutical customers.  That caused a $450,000 reduction in renewal software licenses.  The amount was offset by the addition of 18 new customers.  But overall revenue increased by only 2% to $2.29 million.  Earnings declined 20% to $.04 a share.  Simulations Plus indicated that revenue growth is likely to be restored to a 15%-20% pace in upcoming quarters.  The site closures resulted from reorganizations that appear to be isolated cases.  Adoption of the company's drug development software is continuing to accelerate, helped in part by a demonstration project Simulations Plus conducted last year.  The company identified seven active molecules to treat malaria, just using its software without any laboratory testing whatsoever.  Many of the scientists who were relocated as a result of the customer reorganizations might resurface later in the year, moreover.  In the past most scientists who are familiar with Simulations Plus's products buy them again when they take new jobs.

We have reduced our full year (August) earnings estimate to $.20 a share.  The long term outlook remains positive.  The company's technology has a proven record in helping pharmaceutical companies develop new products more reliably and at lower cost.  New applications are being developed.  The sales force is expanding.  And another demonstration project is in the pipeline.  Performance could improve in future periods.  Downside risk is limited by a $.20 a share cash dividend.  Simulations Plus additionally is a prime acquisition candidate.

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