Simulations Plus, Inc.

Greetings and welcome to the Simulations Plus second quarter fiscal 2024 financial results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded. It is now my pleasure to introduce Lisa Fortuna from Financial Profiles. Ms. Fortuna, you may now begin.

Good afternoon, everyone. Welcome to the Simulations Plus second quarter fiscal 2024 financial results conference call. With me today are Sean O'Connor, Chief Executive Officer, and Will Frederick, Chief Financial Officer and Chief Operating Officer of Simulations Plus. Please note that we updated our quarterly earnings presentation, which will serve as a supplement to today's prepared remarks. You can access the presentation on our investor relations website at www.simulationsplus.com. After management's commentary, we will open the call for questions. As a reminder, the information discussed today may include forward-looking statements that involve risks and uncertainties. Words like believe, expect, and anticipate refer to our best estimates as of this call. There can be no assurances that these will actually take place. So our actual future results could differ significantly from these statements. Further information on the company's risk factors is contained in the company's quarterly and annual reports and filed with the Securities and Exchange Commission. With that said, I'll now turn the call over to Sean O'Connor. Sean?

Thank you, Lisa. Good afternoon, everyone, and thank you for joining our second quarter fiscal 2024 conference call. Results for the second quarter of fiscal 2024 played out as expected. Our team delivered solid revenue growth of 16% with strong performance in both our software and services segments, and reported diluted earnings per share of 20 cents. Given our strong first half results, we are confident we will meet our full year guidance. Our market continues to show encouraging signs of strength. In the first calendar quarter of 2024, Biotech funding has been strong, especially for companies that have drug candidates in the clinic. Biotech companies of this profile can benefit from our full portfolio of modeling and simulation capabilities. For large pharmaceutical companies, funding continues to vary depending on their near-term direction, drug program stability, and business outlook. But the overall market is healthier compared to a year ago. For the balance of 2024, we remain cautiously optimistic that demand for our comprehensive suite of modeling and simulation software products and services will continue to gain momentum as market conditions improve. Before turning to our segment performance, I want to spend a few minutes on our topic of artificial intelligence as it relates to drug discovery and development. As I've noted previously, Simulations Plus was an early developer of AI technology and tools to optimize our predictive technologies. As AI technologies continue to develop, we keep pace by improving our use of AI technology to enhance our modeling and simulation solutions. Additionally, AI accuracy is only as good as the data sets used for training, and our access to accurate public and private data is a true competitive edge and a barrier to entry in our business. Our longstanding partnerships and collaborations with both industry leaders and regulatory agencies have granted us significant access to both private and public data essential for perfecting and refining predictive algorithms. This access to key data is critical to advancing our capabilities in AI-enabled biosimulation well into the future. When you look broadly at the digital economy, our business, rooted in science and data, stands to meaningfully benefit from evolving AI applications. Moving on to our software segment. Software revenues increased 11% in the second quarter, and we're up 16% for the six-month period, with good renewals, upsells, and new logo activity. Overall, we are seeing solid demand in our key markets, except for Asia, which continued to lag overall market growth. Our Chem Informatics business unit delivered 14% revenue growth in the second quarter and 10% for the fiscal year to date. This quarter's growth was due to higher revenues from AdMet Predictor, which continued to gain adoption and added another new AI biotech customer. Additionally, there were eight new customers and 18 upsells during the quarter. Our physiologically-based pharmacokinetics, or PBPK, business unit had a modest 2% revenue increase in the second quarter and 11% for the fiscal year to date. The PBPK business unit added six new customers and booked nine upsells for existing customers. Momentum is strong for GastroPlus, and our expectations for full-year growth are strong. Our clinical pharmacology and pharmacometrics, or CPP, business unit delivered the strongest performance with revenue growth of 38% for the quarter and 21% for the fiscal year to date. Monolix continues to take market share from its primary competitor and saw another large pharma client commit to transition to the platform. During the quarter, we added seven new customers and had 10 customer upsells. Revenue in our quantitative systems pharmacology or QSP business unit decreased 6% for the quarter and increased 77% for the fiscal year to date. As a reminder, quarterly results can be lumpy for QSP based on the high price per license and a small pool of end users. Turning to our services segment, revenues increased 27% during the second quarter and 22% for the six-month period, with solid bookings and a healthy pipeline of active opportunities. Clients are being cautious about spending, but we're seeing a pickup in RFPs, which is a positive sign. There's still lingering volatility associated with start and stop decisions on drug programs and data delivery disruptions related to the completion of clinical trials. But we are managing through this volatility quite well to maintain a steady flow of projects, activities, and utilization of our scientific staff. Total backlog at the end of the second quarter was 18 million, which is strong as we enter the second half of our fiscal year. Services revenue in our CPP business unit were solid, up 10% in the second quarter and 11% for the full fiscal year, despite the impact of volatility. In our QSP business unit, service revenues grew 78% in the second quarter and 89% for the full fiscal year, benefiting from immunology and cancer model projects. Services revenue in our PBPK business unit increased 39% for the second quarter and 11% for the full fiscal year, delivering strong growth after a sluggish first quarter performance. And with that, I'll turn the call over to Will.