Simulations Plus Inc
For the period ended May 31, 2024. Filed Jul 8, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
May 31, 2024 · Filed Jul 8, 2024
SLP$18.500.0%Stored close · as of Oct 5, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-02-29; filed 2024-04-05.
0001023459-24-000048
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-05-31; filed 2024-07-08.
0001023459-24-000092
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 112 previous paragraphs and 123 current paragraphs.
68 unchanged; 39 reworded; 16 added; 5 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 3 previous and 3 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (16)
Current report
On June 11, 2024, we acquired 100% of the issued and outstanding capital stock of Pro-ficiency Holdings, Inc. (“Pro-ficiency”) from the stockholders thereof for an aggregate purchase price of $100,000,000 in cash, subject to post-closing adjustments for net working capital, closing cash, indebtedness, and transaction expenses. Pursuant to the Stock Purchase Agreement, at closing, Pro-ficiency became a wholly owned subsidiary of the Company.
Current report
Pro-ficiency is Based in Raleigh, NC, Pro-ficiency is a leading provider of simulation-based learning, intelligence and compliance solutions for life sciences. The company provides a comprehensive suite of services, anchored by their innovation in customized, virtual simulations, market intelligence and compliance resources, and real-time data and predictive analytics. Combined with AI-based engagement tools and professional production video capabilities, Pro-ficiency achieves improved intelligence for learners and critical risk and market intelligence for leaders.
Current report
Given that Pro-ficiency is now a wholly owned subsidiary of the Company, Pro-ficiency and its subsidiaries’ results of operations will be included in the Company’s consolidated financial statements for future periods. For this reason, amongst others, operating results for the nine months ended May 31, 2024 may not be indicative of the results that may be expected for the current fiscal year and any period in the future.
Current report
Sales and marketing expenses increased by $0.7 million, or 43%, to $2.4 million for the three months ended May 31, 2024, compared to $1.7 million for the three months ended May 31, 2023. This corresponds to a 3% increase in sales and marketing expense as a percentage of revenue. The increase was primarily due to $0.4 million of compensation-related increases driven by an increase in stock compensation expense of $0.1 million, the addition to our team of a Chief Revenue Officer, sales commissions on the strong revenue growth year over year, and general annual salary adjustments for existing employees. Additionally, the acquisition of Immunetrics increased sales and marketing expenses by $0.1 million.
Current report
Comparison of Nine Months Ended May 31, 2024, and May 31, 2023
Current report
Sales and marketing expenses increased by $1.4 million, or 29%, to $6.3 million for the nine months ended May 31, 2024, compared to $4.9 million for the nine months ended May 31, 2023. This corresponds to a 1% increase in sales and marketing expense as a percentage of revenue. The increase was primarily due to $0.8 million of compensation-related increases driven by an increase in stock compensation expense of $0.3 million, the addition to our team of a Chief Revenue Officer, sales commissions on the strong revenue growth year over year, and general annual salary adjustments for existing employees. Additionally, the acquisition of Immunetrics increased sales and marketing expenses by $0.3 million.
Current report
Subsequent to the quarter ended May 31, 2023, on June 11, 2024, the Company 100% of the issued and outstanding capital stock of Pro-ficiency pursuant to the terms of a Stock Purchase Agreement (the “Purchase Agreement”), by and among the Company, Pro-ficiency, each of the stockholders of Pro-ficiency (collectively, the “Sellers”) and WRYP Stockholders Services, LLC, solely in its capacity as the Sellers’ Representative, pursuant to which Pro-ficiency became a wholly owned subsidiary of the Company. As consideration for the acquisition, the Company agreed to pay the Sellers an aggregate of $100 million in cash, subject to post-closing adjustments for net working capital, closing cash, indebtedness, and transaction expenses (collectively, the “Purchase Price”). An aggregate of $1 million of the Purchase Price was placed in escrow to fund payment obligations of the Sellers with respect to post-closing Purchase Price adjustments and post-closing indemnification obligations of the Sellers, and another portion of the Purchase Price was deposited into an account to reimburse the Seller Representative for any fees and expenses incurred by the Seller Representative in performing its duties under the Purchase Agreement as the representative of the Sellers.
Current report
The Purchase Agreement contains standard representations, warranties and covenants and other terms customary in similar transactions. Subject to the provisions of the Purchase Agreement, the Sellers have agreed to indemnify the Company and its affiliates for losses resulting from breaches of representations, warranties and covenants of the Sellers and Pro-ficiency in the Purchase Agreement and for certain other specified matters. The Sellers’ indemnification obligations are subject to various limitations, including, among other things, a deductible, caps, and time limitations.
Current report
In connection with the Acquisition, the Company has obtained a customary buyer’s representation and warranty insurance policy (the “R&W Insurance Policy”) providing for up to $10 million in coverage in the case of breaches of representations and warranties of the Sellers and Pro-ficiency contained in the Purchase Agreement, subject to certain exclusions and an initial $0.5 million retention. The Company, on the one hand, and the Sellers, on the other hand, each bore one-half of the cost of obtaining the R&W Insurance Policy.
Current report
Cash, Cash Equivalents, and Investments
Current report
At May 31, 2024, the Company had $109.1 million in cash and cash equivalents, $9.9 million in short-term investments, and working capital of $124.3 million. Short-term investments consist of highly liquid investment-grade fixed-income securities, diversified among industries and issuers. The investments are U.S. dollar-denominated securities. Our fixed-income investments are exposed to interest rate risk and credit risk. The settlement risk related to these investments is insignificant given that the short-term investments held are primarily highly liquid investment-grade fixed-income securities and can readily be converted to cash when needed.
Current report
Investing Activities
Current report
Immunetrics Acquisition
Current report
Share Repurchases
Current report
For the nine months ended May 31, 2024, we did not repurchase any shares and for the nine months ended May 31, 2023, we repurchased 492,041 shares through our share repurchase program. All repurchases were made using cash resources. As of May 31, 2024, $30 million remains available for additional repurchases under our authorized repurchase program. However, we are not obligated to repurchase any additional shares, and the timing, manner, price, and actual amount of further share repurchases will depend on a variety of factors, including stock price, market conditions, other capital management needs and opportunities, and corporate and regulatory considerations. The share repurchase program has no expiration date but may be terminated at any time at our Board of Directors’ discretion.
Current report
Other Planned Uses of Capital
Removed paragraphs (5)
Previous report
Sales and marketing expenses increased by $0.2 million, or 13%, to $1.9 million for the three months ended February 29, 2024, compared to $1.7 million for the three months ended February 28, 2023. The increase was primarily due to the acquisition of Immunetrics which had an impact of $0.1 million, and an increase in stock compensation of $0.1 million.
Previous report
Comparison of Six Months Ended February 29, 2024, and February 28, 2023
Previous report
Sales and marketing expenses increased by $0.7 million, or 22%, to $3.9 million for the six months ended February 29, 2024, compared to $3.2 million for the six months ended February 28, 2023. The increase was primarily due to additional compensation costs of $0.4 million as well as the acquisition of Immunetrics, which had an impact of $0.2 million.
Previous report
On December 29, 2022, our Board of Directors authorized and approved a share repurchase program for up to $50 million of the outstanding shares of our common stock, including the repurchase of up to $20 million of our outstanding shares through an accelerated share repurchase transaction. Under the repurchase program, shares may be repurchased at our discretion based on ongoing assessment of the capital needs of our business, the market price of shares of our common stock, and general market conditions. Repurchases may be made pursuant to certain SEC regulations, which permit shares of our common stock to be repurchased when we would otherwise be prohibited from doing so under insider-trading laws. There is no time limit in place for the completion of our share repurchase program, and the program may be suspended or discontinued at any time. Except as was required by the ASR Agreement (as defined below), we are not obligated to repurchase any shares under the repurchase program. We have funded share repurchases to date, and will fund future repurchases, if any, through cash on hand and cash generated from operations.
Previous report
On January 11, 2023, the Company entered into an accelerated share repurchase agreement (the “ASR Agreement”) with Morgan Stanley & Co. LLC (“Morgan Stanley”) to repurchase an aggregate of $20 million of our outstanding shares of common stock. The ASR Agreement was executed as part of our existing $50 million share repurchase program. Pursuant to the terms of the ASR Agreement, we made an initial payment, using available cash balances, of $20 million to Morgan Stanley and received an initial delivery of 408,685 shares of Company common stock from Morgan Stanley. These 408,685 shares were retired and are treated as authorized, unissued shares. At final settlement on May 20, 2023, based on the volume-weighted average price of our common stock during the term of the ASR Agreement, Morgan Stanley delivered an additional 83,356 shares of Company common stock to us, which shares were also retired and treated as authorized, unissued shares. After completion of the repurchases under the ASR Agreement, $30 million remains available for additional repurchases under our authorized repurchase program.
Reworded paragraphs (39)
Previous wording
Since its incorporation in 1996, Simulations Plus, Inc. has been a leading provider in the biosimulation market, offering software and consulting services that support drug discovery, development, research, and regulatory submissions. Our solutions bridge artificial intelligence (AI)/machine learning, physiologically based pharmacokinetics, quantitative systems pharmacology/toxicology, and population PK/PD modeling approaches. Our technology is licensed and applied by major pharmaceutical and biotechnology companies, universities, and regulatory agencies worldwide. The Company is headquartered in Southern California, with offices in Buffalo, NY; Research Triangle Park, NC; Pittsburgh, PA; and Paris, France. Our common stock has traded on the Nasdaq Global Select Market under the symbol “SLP” since May 13, 2021, prior to which it traded on the Nasdaq Capital Market under the same symbol.
Current wording
Since its incorporation in 1996, Simulations Plus, Inc. has been a leading provider in the biosimulation market, offering software and consulting services that support drug discovery, development, research, and regulatory submissions. Our solutions bridge artificial intelligence AI/machine learning, physiologically based pharmacokinetics, quantitative systems pharmacology/toxicology, and population PK/PD modeling approaches. Our technology is licensed and applied by major pharmaceutical and biotechnology companies, universities, and regulatory agencies worldwide. The Company is headquartered in Southern California, with offices in Buffalo, NY; Research Triangle Park, NC; Pittsburgh, PA; and Paris, France. The acquisition of Pro-ficiency shortly after the end of this reporting period added another location in Research Triangle Park, NC. Our common stock has traded on the Nasdaq Global Select Market under the symbol “SLP” since May 13, 2021, prior to which it traded on the Nasdaq Capital Market under the same symbol.
Previous wording
In December 2023, we reorganized our information technology server infrastructure by consolidating 10 racks previously located in Pittsburgh, PA to 1 rack located in Buffalo, NY. This led to a 90% reduction in our leased space, thereby reducing our carbon footprint and contributing towards our ESG efforts.
Current wording
Environment: In December 2023, we consolidated our information technology server infrastructure by consolidating ten racks previously located in Pittsburgh, PA to one rack located in Buffalo, NY. This led to a 90% reduction in our leased space, thereby reducing our carbon usage and carbon footprint thereby contributing towards our ESG efforts.
Previous wording
Revenues increased by $2.6 million, or 16%, to $18.3 million for the three months ended February 29, 2024, compared to $15.8 million for the three months ended February 28, 2023. This increase is primarily due to a $1.1 million, or 11%, increase in software-related revenue and a $1.4 million, or 27%, increase in service-related revenue when compared to the three months ended February 28, 2023.
Current wording
Revenues increased by $2.3 million, or 14%, to $18.5 million for the three months ended May 31, 2024, compared to $16.2 million for the three months ended May 31, 2023. This increase is primarily due to a $1.3 million, or 12%, increase in software-related revenue and a $1.0 million, or 18%, increase in service-related revenue when compared to the three months ended May 31, 2023.
Previous wording
Cost of revenues increased by $2.5 million, or 94%, for the three months ended February 29, 2024, compared to the three months ended February 28, 2023. $1.3 million of the increase in cost of revenues is due to the reorganization of our internal structure from divisions based on prior acquisitions to business units organized around key product and service offerings. As part of this reorganization, we evaluated our departmental structure with a focus on continuing to improve operational performance and profitability while providing our investors improved visibility to our progress. Accordingly, we moved all services personnel into cost of revenues departments, moved all research and development personnel into research and development expense departments, moved all sales and marketing personnel into sales and marketing expense departments, and moved all overhead personnel into general and administrative expense departments. These movements completed the final step toward consolidating the company from the various acquired company divisions to a company-wide business unit structure. The $1.3 million increase in cost of revenues corresponds to the $1.3 million decrease in general and administrative expenses discussed below. $0.6 million of the increase in cost of revenues is due to the acquisition of Immunetrics. $0.6 million of the increase is due to compensation related increases, primarily attributable to the addition of scientific headcount as well as general annual salary adjustments for existing employees.
Current wording
Cost of revenues increased by $2.3 million, or 79%, for the three months ended May 31, 2024, compared to the three months ended May 31, 2023. This corresponds to a 9% increase in cost of revenue as a percentage of revenue. $0.5 million of the increase in cost of revenues is due to the reorganization of our internal structure from divisions based on prior acquisitions to business units organized around key product and service offerings. As part of this reorganization, we evaluated our departmental structure with a focus on continuing to improve operational performance and profitability while providing our investors improved visibility to our progress. Accordingly, we moved all services personnel into cost of revenues departments, moved all research and development personnel into research and development expense departments, moved all sales and marketing personnel into sales and marketing expense departments, and moved all overhead personnel into general and administrative expense departments. These movements completed the final step toward consolidating the Company from the various acquired company divisions to a company-wide business unit structure. The $0.5 million increase in cost of revenues corresponds to the $0.5 million decrease in general and administrative expenses discussed below. $0.5 million of the increase in cost of revenues is due to the acquisition of Immunetrics. $1.0 million of the increase is due to compensation-related increases, primarily attributable to the addition of scientific headcount as well as general annual salary adjustments for existing employees.
Previous wording
Gross profit remained mostly consistent at $13.2 million for the three months ended February 29, 2024, compared to $13.1 million for the three months ended February 28, 2023. Although, the gross profit remained mostly consistent, gross profit increased in our software business by $0.6 million, or 6%, and decreased for our services business by $0.5 million, or 15%.
Current wording
Gross profit remained mostly consistent at $13.3 million for the three months ended May 31, 2024, compared to $13.3 million for the three months ended May 31, 2023. Although, the gross profit remained mostly consistent, gross profit increased in our software business by $0.8 million, or 8%, and decreased for our services business by $0.8 million, or 23%.
Previous wording
Overall gross margin percentage was 72% and 83% for the three months ended February 29, 2024, and February 28, 2023, respectively.
Current wording
Overall gross margin percentage was 71% and 82% for the three months ended May 31, 2024, and 2023, respectively.
Previous wording
We incurred $2.1 million of research and development costs during the three months ended February 29, 2024. Of this amount, $0.8 million was capitalized as a part of capitalized software development costs and $1.3 million was expensed. We incurred $2.0 million of research and development costs during the three months ended February 28, 2023. Of this amount, $0.7 million was capitalized and $1.3 million was expensed. Research and development spend remained relatively consistent with a slight increase of $0.1 million, or 7%, for the three months ended February 29, 2024, compared to the three months ended February 28, 2023.
Current wording
We incurred $2.1 million of research and development costs during the three months ended May 31, 2024. Of this amount, $0.8 million was capitalized as a part of capitalized software development costs and $1.3 million was expensed. We incurred $1.8 million of research and development costs during the three months ended May 31, 2023. Of this amount, $0.9 million was capitalized and $0.9 million was expensed. Research and development spend remained relatively consistent with a slight increase of $0.3 million, or 15%, for the three months ended May 31, 2024, compared to the three months ended May 31, 2023. This corresponds to a 1% increase in research and development expense as a percentage of revenue.
Previous wording
General, and administrative (“G&A”) expenses decreased by $0.5 million, or 9%, to $5.5 million for the three months ended February 29, 2024, compared to $6.0 million for the three months ended February 28, 2023. The decrease is primarily driven by a $1.3 million shift from general and administrative expense to cost of revenues, as referenced above, due to the reorganization of our internal structure from divisions based on prior acquisitions to business units organized around key product and service offerings, partially offset by an increase of $0.2 million from the acquisition of Immunetrics and an increase of $0.1 million in compensation costs due to general annual salary adjustments for existing employees.
Current wording
General, and administrative (“G&A”) expenses increased by $1.1 million, or 17%, to $7.7 million for the three months ended May 31, 2024, compared to $6.5 million for the three months ended May 31, 2023. This corresponds to a 1% increase in G&A expense as a percentage of revenue. The increase is primarily driven by a $0.5 million increase in mergers and acquisition expenses, $0.5 million of increase in compensation costs due to general annual salary adjustments for existing employees, an increase of $0.2 million from the acquisition of Immunetrics, an increase in professional fees of $0.2 million, and an increase in software license costs of $0.1 million, partially offset by $0.5 million shift from G&A expense to cost of revenues, as referenced above, due to the reorganization of our internal structure from divisions based on prior acquisitions to business units organized around key product and service offerings.
Previous wording
Total other income was $0.8 million for the three months ended February 29, 2024, compared to total other income of $1.0 million for the three months ended February 28, 2023. The decrease is primarily due to an increase in the fair value adjustment of the earnout liability of $0.4 million in the current period and a foreign currency loss of $0.1 million, partially offset by an increase in interest income of $0.4 million driven by an increase in interest rates on investment in debt securities. The increase in the fair value of the earnout liability is attributable to favorable developments to our revenue projections for Immunetrics and corresponds to a higher likelihood of achieving the earnout targets.
Current wording
Total other income was $2.0 million for the three months ended May 31, 2024, compared to total other income of $0.8 million for the three months ended May 31, 2023. $0.6 million of the increase is attributable to a decrease in the fair value of the earnout liability driven by more modest revenue projections for Immunetrics during the second earnout measurement period, $0.4 million of the increase is attributable to an increase in interest income driven by an increase in interest rates on our investments in debt securities, and $0.3 million of the increase is attributable to nominal foreign currency exchange fluctuations during the three months ended May 31, 2024 compared to a $0.3 million loss for the three months ended May 31, 2023.
Previous wording
The provision for income taxes was $1.2 million for the three months ended February 29, 2024, compared to $0.9 million for the three months ended February 28, 2023. Our effective tax rate increased to 23% for the three months ended February 29, 2024, from 18% for the three months ended February 28, 2023. The 18% effective tax rate for the three months ended February 28, 2023 was favorably affected by increased disqualifying dispositions of incentive stock options, which caused the effective tax rate to have increased comparatively for the three months ended February 29, 2024.
Current wording
The provision for income taxes was $0.8 million for the three months ended May 31, 2024, compared to $0.9 million for the three months ended May 31, 2023. Our effective tax rate remained consistent at 19% for the three months ended May 31, 2024 compared to the three months ended May 31, 2023.
Previous wording
Revenues increased by $5.1 million, or 18%, to $32.8 million for the six months ended February 29, 2024, compared to $27.7 million for the six months ended February 28, 2023. This increase is primarily due to an increase of $2.6 million, or 16%, in software-related revenue primarily driven by higher revenues from GastroPlus® of $1.0 million, higher revenues from Monolix™ of$0.8 million, higher revenues from quantitative systems pharmacology(“QSP”) of$0.6 million, andhigher revenues from ADMET Predictor® of$0.3 million. $2.4 million, or 22%, of the overall increase in revenues is due to an increase in service-related revenues, primarily driven by higher revenues from QSP services of$1.9 million, of which the Immunetrics services revenues contributed $1.1 million. Additionally, the increase in services revenue is due to higher revenues from clinical pharmacology & pharmacometrics (“CPP”) services of $0.6 million, and higher revenues from physiologically based pharmacokinetics (“PBPK”) services of $0.3 million, offset by lower revenues from regulatory strategies (“REG”) services of $0.3 million.
Current wording
Revenues increased by $7.4 million, or 17%, to $51.3 million for the nine months ended May 31, 2024, compared to $43.9 million for the nine months ended May 31, 2023. This increase is primarily due to an increase of $3.9 million, or 14%, in software-related revenue primarily driven by higher revenues from GastroPlus® of $1.4 million, higher revenues from Monolix™ of$1.0 million, higher revenues from QSP of$0.9 million, andhigher revenues from ADMET Predictor® of$0.6 million. $3.5 million, or 21%, of the overall increase in revenues is due to an increase in service-related revenues, primarily driven by higher revenues from QSP services of$2.5 million, mostly due to the addition of Immunetrics services revenues. Additionally, the increase in services revenue is due to higher revenues from CPP services of $1.3 million and higher revenues from PBPK services of $0.2 million, offset by lower revenues from REG services of $0.4 million.
Previous wording
Cost of revenues increased by $4.4 million, or 84%, for thesix months ended February 29, 2024, compared to thesix months ended February 28, 2023.$1.9 million of the increase in cost of revenues is due to the reorganization of our internal structure from divisions based on prior acquisitions to business units organized around key product and service offerings. As part of this reorganization, we evaluated our departmental structure with a focus on continuing to improve operational performance and profitability while providing our investors improved visibility to our progress. Accordingly, we moved all services personnel into cost of revenues departments, moved all research and development personnel into research and development expense departments, moved all sales and marketing personnel into sales and marketing expense departments, and moved all general and administrative personnel into general and administrative expense departments. These movements completed the final step toward consolidating the company from the various acquired company divisions to a company-wide business unit structure. The $1.9 million increase in cost of revenues corresponds to the $1.9 million decrease in general and administrative expenses discussed below. $1.1 million of the increase in cost of revenues is due to the acquisition of Immunetrics. $1.3 million of the increase is due to compensation related increases, primarily attributable to the addition of scientific headcount as well as general annual salary adjustments for existing employees.
Current wording
Cost of revenues increased by $6.8 million, or 82%, for thenine months ended May 31, 2024, compared to thenine months ended May 31, 2023. This corresponds to a 10% increase in cost of revenue as a percentage of revenue. $2.4 million of the increase in cost of revenues is due to the reorganization of our internal structure from divisions based on prior acquisitions to business units organized around key product and service offerings. As part of this reorganization, we evaluated our departmental structure with a focus on continuing to improve operational performance and profitability while providing our investors improved visibility to our progress. Accordingly, we moved all services personnel into cost of revenues departments, moved all research and development personnel into research and development expense departments, moved all sales and marketing personnel into sales and marketing expense departments, and moved all general and administrative personnel into G&A expense departments. These movements completed the final step toward consolidating the Company from the various acquired company divisions to a company-wide business unit structure. $2.4 million of the increase in cost of revenues corresponds to a $2.4 million decrease in general and administrative expenses discussed below. $1.6 million of the increase in cost of revenues is due to the acquisition of Immunetrics. $2.3 million of the increase is due to compensation-related increases, primarily attributable to the addition of scientific headcount as well as general annual salary adjustments for existing employees.
Previous wording
Gross profit increased by $0.6 million, or 3%, to $23.1 million for thesix months ended February 29, 2024, compared to $22.4 million, for thesix months ended February 28, 2023. The increase in gross profit is primarily due to an increase in gross profit for our software business of $2.0 million, or 14%, reflecting the strong revenue growth and operating leverage of our software business, partially offset by a decrease in gross profit for our services business of $1.4 million, or 18%, resulting from the reorganization of our internal structure as well as additional services headcount from the Immunetrics acquisition.
Current wording
Gross profit increased by $0.6 million, or 2%, to $36.3 million for thenine months ended May 31, 2024, compared to $35.7 million for thenine months ended May 31, 2023. The increase in gross profit is primarily due to an increase in gross profit for our software business of $2.8 million, or 11%, reflecting the strong revenue growth and operating leverage of our software business, partially offset by a decrease in gross profit for our services business of $2.2 million, or 20%, resulting from the reorganization of our internal structure as well as additional services headcount from the Immunetrics acquisition.
Previous wording
Overall gross margin percentage was 70% and 81% for thesix months ended February 29, 2024 and February 28, 2023, respectively.
Current wording
Overall gross margin percentage was 71% and 81% for thenine months ended May 31, 2024, and May 31, 2023, respectively.
Previous wording
We incurred $4.3 million of research and development costs during the six months ended February 29, 2024. Of this amount, $1.8 million was capitalized as a part of capitalized software development costs and $2.5 million was expensed. We incurred $4.0 million of research and development costs during the six months ended February 28, 2023. Of this amount, $1.6 million was capitalized and $2.5 million was expensed. Research and development spend remained relatively consistent with a slight increase of $0.2 million, or 6%, for the six months ended February 29, 2024, compared to the six months ended February 28, 2023.
Current wording
We incurred $6.4 million of research and development costs during the nine months ended May 31, 2024. Of this amount, $2.6 million was capitalized as a part of capitalized software development costs and $3.8 million was expensed. We incurred $6.0 million of research and development costs during the nine months ended May 31, 2023. Of this amount, $2.6 million was capitalized and $3.4 million was expensed. Research and development spend remained relatively consistent with a slight increase of $0.4 million, or 6%, for the nine months ended May 31, 2024, compared to the nine months ended May 31, 2023. This corresponds to a 1% decrease in research and development expense as a percentage of revenue.
Previous wording
G&A expenses remained relatively consistent with a slight decrease of $0.6 million, or 5%, to $11.2 million for the six months ended February 29, 2024, compared to $11.8 million for the six months ended February 28, 2023. The decrease is primarily driven by a $1.9 million shift from general and administrative expense to cost of revenues, as referenced above, due to the reorganization of our internal structure from divisions based on prior acquisitions to business units organized around key product and service offerings, partially offset by an increase of $0.4 million from the acquisition of Immunetrics and an increase of $0.3 million in compensation costs due to general annual salary adjustments for existing employees.
Current wording
G&A expenses remained relatively consistent with a slight increase of $0.5 million, or 3%, to $18.9 million for the nine months ended May 31, 2024, compared to $18.4 million for the nine months ended May 31, 2023. This corresponds to 6% decrease in G&A expense as a percentage of revenue. The increase is primarily driven by an increase of $0.5 million from the acquisition of Immunetrics, an increase of $1.0 million in compensation costs due to general annual salary adjustments for existing employees, an increase in mergers and acquisition expenses of $0.5 million, an increase in professional fees of $0.3 million, an increase in software license costs of $0.2 million, and an increase in amortization of internal-use software of $0.1 million, offset by a $2.4 million shift from G&A expense to cost of revenues, as referenced above, due to the reorganization of our internal structure from divisions based on prior acquisitions to business units organized around key product and service offerings.
Previous wording
Total other income was $2.3 million for thesix months ended February 29, 2024, compared to total other income of $1.8 million for thesix months ended February 28, 2023. The increase is primarily due to an increase in interest income of $0.9 million driven by an increase in interest rates from investment in debt securities as well as a decrease in the fair value of contingent consideration of$0.3 million related to the Immunetrics earnout liability. The decrease in the fair value of the earnout liability is attributable to a partial earnout attainment for the first earnout measurement period. The earnout target for the first measurement period was $4.0 million, however, based on revenue attainment, we only paid $2.5 million in March 2024 for the first earnout measurement period. As a result of the partial attainment, there is a catch-up opportunity for the second measurement period's earnout payment to increase from the target of $4.0 million to $5.5 million.
Current wording
Total other income was $4.3 million for thenine months ended May 31, 2024, compared to total other income of $2.6 million for thenine months ended May 31, 2023. The increase is primarily due to an increase in interest income of $1.3 million from our investments in debt securities driven by an increase in interest rates, $0.2 million of the increase is attributable to less than $0.1 million foreign currency exchange loss during the nine months ended May 31, 2024, compared to a $0.3 million loss for the nine months ended May 31, 2023, as well as a decrease of$0.3 millionin the fair value of the earnout liability related to the Immunetrics acquisition. The decrease in the fair value of the earnout liability is attributable to a partial earnout attainment for the first earnout measurement period and more modest revenue projections for the second earnout measurement period. The earnout target for the first measurement period was $4.0 million, however, based on revenue attainment, we only paid $2.5 million in March 2024 for the first earnout measurement period. As a result of the partial attainment, there is a catch-up opportunity for the second measurement period's earnout payment to increase from the target of $4.0 million to $5.5 million.
Previous wording
The provision for income taxes was $1.7 million for the six months ended February 29, 2024, compared to $1.3 million for the six months ended February 28, 2023. Our effective tax rate increased to 22% mainly due to disqualifying dispositions of incentive stock options for the six months ended February 29, 2024, when compared to 19% for the six months ended February 28, 2023. The 19% effective tax rate for the six months ended February 28, 2023 was favorably affected by increased disqualifying dispositions of incentive stock options, which caused the effective tax rate to have increased comparatively for the six months ended February 29, 2024.
Current wording
The provision for income taxes was $2.4 million for the nine months ended May 31, 2024, compared to $2.2 million for the nine months ended May 31, 2023. Our effective tax rate increased to 21% mainly due to disqualifying dispositions of incentive stock options for the nine months ended May 31, 2024, when compared to 19% for the nine months ended May 31, 2023. The 19% effective tax rate for the nine months ended May 31, 2023 was favorably affected by increased disqualifying dispositions of incentive stock options, which caused the effective tax rate to have increased comparatively for the nine months ended May 31, 2024.
Previous wording
At February 29, 2024, the Company had $37.0 million in cash and cash equivalents, $71.5 million in short-term investments, and working capital of $113.4 million. The Company also has $9.0 million in long-term investments that do not exceed eighteen months and can readily be converted to cash when needed. Our principal sources of capital have been a follow-on public offering in August 2020 for $107.7 million and cash flows from our operations. We have achieved continuous positive operating cash flow over the last fourteen fiscal years.
Current wording
Our principal sources of capital have been a follow-on public offering in August 2020 for $107.7 million and cash flows from our operations. We have achieved continuous positive operating cash flow over the last fourteen fiscal years. We expect existing cash, cash equivalents, short-term investments, cash generated by ongoing operations, and working capital, will be sufficient to fund our operating activities and cash commitments for investing and financing activities, including the dividend distribution on August 5, 2024, and material capital expenditures, for at least the next 12 months and beyond.
Previous wording
Net cash provided by operating activities was $6.0 million for the six months ended February 29, 2024. Our operating cash flows resulted in part from our net income of $6.0 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, $3.9 million related to changes in balances of operating assets and liabilities was subtracted from net income and $3.9 million related to non-cash charges was added to net income to reconcile to cash flow from operations.
Current wording
Net cash provided by operating activities was $11.7 million for the nine months ended May 31, 2024. Our operating cash flows resulted in part from our net income of $9.1 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, $3.0 million related to changes in balances of operating assets and liabilities was subtracted from net income and $5.6 million related to non-cash charges was added to net income to reconcile to cash flow from operations.
Previous wording
Net cash provided by operating activities was $10.2 million for the six months ended February 28, 2023. Our operating cash flows resulted primarily from our net income of $5.4 million. In addition, $0.6 million related to changes in balances of operating assets and liabilities was added to net income and $4.2 million related to noncash charges was added to net income to reconcile to cash flow from operations.
Current wording
Net cash provided by operating activities was $18.8 million for the nine months ended May 31, 2023. Our operating cash flows resulted primarily from our net income of $9.4 million. In addition, $4.9 million related to changes in balances of operating assets and liabilities was added to net income and $4.4 million related to noncash charges was added to net income to reconcile to cash flow from operations.
Previous wording
Net cash provided by operating activities decreased by $4.3 million during the six months ended February 29, 2024, compared to the six months ended February 28, 2023. $2.9 million of this change relates to accounts receivable, as the Company experienced strong cash collections from customers on older balances during the six months ended February 28, 2023, and increased revenues for the period ending February 29, 2024.
Current wording
Net cash provided by operating activities decreased by $7.1 million during the nine months ended May 31, 2024, compared to the nine months ended May 31, 2023. Approximately, $3.5 million of this change relates to accounts receivable, as the Company experienced strong cash collections from customers on older balances during the nine months ended May 31, 2023.
Previous wording
Net cash used in investing activities during the six months ended February 29, 2024, was $24.4 million, primarily due to the purchase of short-term investments of $49.0 million and computer software development costs of $1.7 million, offset by proceeds from maturities of short-term investments of $36.3 million.
Current wording
Net cash provided by investing activities during the nine months ended May 31, 2024, was $45.5 million, primarily due to the proceeds from maturities of short-term investments of $71.1 million, offset by purchase of short-term investments of $67.2 million and computer software development costs of $2.5 million.
Previous wording
Net cash used in investing activities during the six months ended February 28, 2023, was $1.1 million, primarily due to the purchase of short-term investments of $47.2 million and computer software development costs of $1.7 million, offset by proceeds from maturities of short-term investments of $48.2 million.
Current wording
Net cash provided by investing activities during the nine months ended May 31, 2023, was $6.8 million, primarily due to the proceeds from maturities of short-term investments of $82.0 million, offset by purchase of short-term investments of $71.8 million and computer software development costs of $2.6 million.
Previous wording
Net cash used in financing activities during the six months ended February 29, 2024, was $2.1 million, primarily due to dividend payments totaling $2.4 million, partially offset by proceeds from the exercise of stock options totaling $0.3 million.
Current wording
Net cash used in financing activities during the nine months ended May 31, 2024, was $5.6 million, primarily due to dividend payments totaling $3.6 million and a the first cash earnout payments in the aggregate amount of $2.5 million to the former equity holders and employees of Immunetrics, partially offset by proceeds from the exercise of stock options totaling $0.5 million.
Previous wording
Net cash used in financing activities during the six months ended February 28, 2023, was $21.5 million, primarily due to share repurchases of $20.0 million and dividend payments totaling $2.4 million, partially offset by proceeds from the exercise of stock options totaling $1.0 million.
Current wording
Net cash used in financing activities during the nine months ended May 31, 2023, was $22.1 million, primarily due to share repurchases of $20.0 million and dividend payments totaling $3.6 million, partially offset by proceeds from the exercise of stock options totaling $1.5 million.
Previous wording
On June 16, 2023, the Company acquired Immunetrics through a reverse triangular merger, pursuant to which Immunetrics became a wholly owned subsidiary of the Company. As consideration for the acquisition, at closing, the Company paid the equity holders of Immunetrics a cash payment in the aggregate amount of approximately $13.7 million, and also paid the representative of the Immunetrics stockholders $250,000 as an expense fund to cover expenses that it incurs in its role as such (collectively, the “Closing Payments”). In addition to the Closing Payments, the Company held back $1.8 million to cover any negative working capital adjustments and Immunetrics’ indemnification obligations under the Merger Agreement (the “Holdback Amount”), the balance of which, less any deductions, if any, will be distributed to the Immunetrics stockholders after expiration of the applicable hold back period. Furthermore, the Company agreed to pay the Immunetrics equity holders an aggregate amount of up to $8.0 million in earnout payments, consisting of two payouts of up to $4.0 million each, if Immunetrics achieves certain revenue milestones for the calendar years 2023 and 2024 (the “Earnout Payments,” and together with the Closing Payments and Holdback Amount, the “Merger Consideration”). In March 2024, the Company made the first cash earnout payments in the aggregate amount of $2.5 million to the former equity holders and employees of Immunetrics. As a result of the partial attainment, there is a catch-up opportunity for the second measurement period's earnout payment to increase from the target of $4.0 million to $5.5 million.
Current wording
On June 16, 2023, the Company acquired Immunetrics through a reverse triangular merger, pursuant to which Immunetrics became a wholly owned subsidiary of the Company. As consideration for the acquisition, at closing, the Company paid the equity holders of Immunetrics a cash payment in the aggregate amount of approximately $13.7 million, and also paid the representative of the Immunetrics stockholders $250,000 as an expense fund to cover expenses that it incurs in its role as such (collectively, the “Closing Payments”). In addition to the Closing Payments, the Company held back $1.8 million to cover any negative working capital adjustments and Immunetrics’ indemnification obligations under the Merger Agreement (the “Holdback Amount”), the balance of which, less any deductions, if any, will be distributed to the Immunetrics stockholders after expiration of the applicable hold-back period. Furthermore, the Company agreed to pay the Immunetrics equity holders an aggregate amount of up to $8.0 million in earnout payments, consisting of two payouts of up to $4.0 million each, if Immunetrics achieves certain revenue milestones for the calendar years 2023 and 2024 (the “Earnout Payments,” and together with the Closing Payments and Holdback Amount, the “Merger Consideration”). In March 2024, the Company made the first cash earnout payments in the aggregate amount of $2.5 million to the former equity holders and employees of Immunetrics.
Previous wording
We believe that our existing capital and anticipated funds from operations will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for the foreseeable future, including to complete the remaining $30 million of repurchases available under our $50 million share repurchase program, if we so choose. Thereafter, if cash generated from operations is insufficient to satisfy our capital requirements, we may have to sell additional equity or debt securities. In the event that additional financing is needed in the future, there can be no assurance that such financing will be available to us, or, if available, that it will be in amounts and on terms acceptable to us.
Current wording
We believe that our existing capital and anticipated funds from operations will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for the foreseeable future. If cash generated from operations is insufficient to satisfy our capital requirements, we may have to sell additional equity or debt securities. In the event that additional financing is needed in the future, there can be no assurance that such financing will be available to us, or, if available, that it will be in amounts and on terms acceptable to us.
Previous wording
Refer to Note 5 – Shareholders’ Equity of the Notes to Financial Statements (Part I, Item 1 of this Report) for details regarding dividends.
Current wording
Refer to Note 5 – Shareholders’ Equity of the Notes to Financial Statements (Part I, Item 1 of this Report) for details regarding dividends. As discussed below, our Board of Directors has determined to discontinue the Company’s quarterly cash dividend after the next dividend distribution on August 5, 2024, and reallocate these funds to our capital allocation strategy for investing in growth initiatives that are intended to generate long-term shareholder value.
Previous wording
We continue to seek opportunities for strategic acquisitions, investments, and partnerships. If one or more such strategic opportunities are identified, a substantial portion of our cash reserves may be required to complete it; however, we intend to maintain sufficient cash reserves to provide reasonable assurance that outside financing will not be necessary to continue operations. If we identify an attractive strategic opportunity that would require more cash to complete than we are willing or able to use from our cash reserves, we will consider financing options to complete the transaction, including obtaining loans and issuing additional securities.
Current wording
We continue to seek opportunities for strategic acquisitions, investments, and partnerships. If we identify an attractive strategic opportunity that would require more cash to complete than we are willing or able to use from our cash reserves, we will consider financing options to complete the transaction, including obtaining loans and issuing additional securities.
Previous wording
Except as discussed elsewhere in this Quarterly Report on Form 10-Q (this “Report”), we are not aware of any trends or demands, commitments, events, or uncertainties that are reasonably likely to result in a decrease in liquidity of our assets. The trend over the last ten years has been increasing cash deposits from our operating cash flows, and we expect that trend to continue for the foreseeable future.
Current wording
Except as discussed elsewhere in this Quarterly Report on Form 10-Q (this “Report”), we are not aware of any trends or demands, commitments, events, or uncertainties that are reasonably likely to result in a decrease in liquidity of our assets. The trend over the last ten years has been positive operating cash flows, and we expect that trend to continue for the foreseeable future.
Previous wording
Historically, we have paid cash dividends of $0.06 per share to holders of shares of our common stock on a quarterly basis. The declaration of any future dividends will be determined by our Board of Directors each quarter and will depend on earnings, financial condition, capital requirements, and other factors.
Current wording
Historically, we have paid cash dividends of $0.06 per share to holders of shares of our common stock on a quarterly basis. Our Board of Directors has determined to discontinue the Company’s quarterly cash dividend after the dividend distribution on August 5, 2024, and reallocate these funds to our capital allocation strategy for investing in growth initiatives that are intended to generate long-term shareholder value.
Previous wording
(1) Contracts payable are related to the Merger Agreement that the Company entered into with Immunetrics and certain other parties on June 16, 2023. Under the terms of the agreement, we agreed to pay the former equityholders of Immunetrics earnout payments up to $8.0 million, consisting of two payouts of up to $4.0 million each, subject to a potential catch-up increase in certain circumstances. In March 2024, the Company made the first cash earnout payments in the aggregate amount of $2.5 million to the former equity holders and employees of Immunetrics. Additionally, a portion of the consideration for the acquisition, in an amount equal to $1.8 million, was held-back by the Company at closing to cover any negative net working capital adjustments (if any) and Immunetrics’ indemnification obligations under the Merger Agreement.
Current wording
(1) Contracts payable are related to the Merger Agreement that the Company entered into with Immunetrics and certain other parties on June 16, 2023. Under the terms of the agreement, we agreed to pay the former equity holders of Immunetrics earnout payments up to $8.0 million, consisting of two payouts of up to $4.0 million each, subject to a potential catch-up increase in certain circumstances. In March 2024, the Company made the first cash earnout payments in the aggregate amount of $2.5 million to the former equity holders and employees of Immunetrics. As of May 31, 2024, the fair value of the earnout liability recorded was $2.0 million. Additionally, a portion of the consideration for the acquisition, in an amount equal to $1.8 million, was held-back by the Company at closing to cover any negative net working capital adjustments (if any) and Immunetrics’ indemnification obligations under the Merger Agreement.
Previous wording
The establishment of technological feasibility and the ongoing assessment for recoverability of capitalized computer software development costs require considerable judgment by management with respect to certain external factors including, but not limited to, technological feasibility, anticipated future gross revenues, estimated economic life, and changes in software and hardware technologies. Capitalized software development costs are comprised primarily of salaries and direct payroll-related costs and the purchase of existing software to be used in the Company’s software products. Total capitalized computer software development costs were $0.8 million and $0.7 million for the three months ended February 29, 2024 and February 28, 2023, respectively, and $1.8 million and $1.6 million for the six months ended February 29, 2024 and February 28, 2023, respectively.
Current wording
The establishment of technological feasibility and the ongoing assessment for recoverability of capitalized computer software development costs require considerable judgment by management with respect to certain external factors including, but not limited to, technological feasibility, anticipated future gross revenues, estimated economic life, and changes in software and hardware technologies. Capitalized software development costs are comprised primarily of salaries and direct payroll-related costs and the purchase of existing software to be used in the Company’s software products. Total capitalized computer software development costs were $0.8 million and $0.9 million for the three months ended May 31, 2024, and May 31, 2023, respectively, and $2.6 million and $2.6 million for the nine months ended May 31, 2024, and May 31, 2023, respectively.
Previous wording
Amortization of capitalized computer software development costs is calculated on a product-by-product basis on the straight-line method over the estimated economic life of the products, not to exceed five years. Amortization of software development costs amounted to $0.4 million and $0.4 million for the three months ended February 29, 2024, and February 28, 2023, respectively, and $0.8 million and $0.8 million for the fiscal six months ended February 29, 2024, and February 28, 2023, respectively. We expect future amortization expense to vary due to increases in capitalized computer software development costs.
Current wording
Amortization of capitalized computer software development costs is calculated on a product-by-product basis on the straight-line method over the estimated economic life of the products, not to exceed five years. Amortization of software development costs amounted to $0.5 million and $0.4 million for the three months ended May 31, 2024, and May 31, 2023, respectively, and $1.3 million and $1.2 million for the fiscal nine months ended May 31, 2024, and May 31, 2023, respectively. We expect future amortization expense to vary due to increases in capitalized computer software development costs.
Previous wording
Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets. Goodwill is not amortized, instead it is tested for impairment annually or when events or circumstances change that would indicate that goodwill might be impaired. Events or circumstances that could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of the Company's use of the acquired assets or the strategy for the Company's overall business, significant negative industry or economic trends, or significant under-performance relative to expected historical or projected future results of operations.
Current wording
Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets. Goodwill is not amortized, instead it is tested for impairment annually or when events or circumstances change that would indicate that goodwill might be impaired. Events or circumstances that could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of the Company's use of the acquired assets or the strategy for the Company's overall business, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.
Previous wording
Goodwill is tested for impairment at the reporting unit level, which is one level below or the same as an operating segment. As of February 29, 2024, after completion of the Company's internal reorganization, the Company determined that it had five reporting units: CPP, QSP, PBPK, Cheminformatics, and REG.
Current wording
Goodwill is tested for impairment at the reporting unit level, which is one level below or the same as an operating segment. As of May 31, 2024, after completion of the Company's internal reorganization, the Company determined that it had five reporting units: Cheminformatics, PBPK, QSP, CPP, and REG.
Previous wording
As of February 29, 2024, the entire balance of goodwill was attributed to two of the Company's reporting units, CPP and QSP. Intangible assets subject to amortization are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable. No impairment losses were recorded during the three and six months ended February 29, 2024, and February 28, 2023, respectively.
Current wording
As of May 31, 2024, the entire balance of goodwill was attributed to two of the Company's reporting units, CPP and QSP. Intangible assets subject to amortization are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable. No impairment losses were recorded during the three and nine months ended May 31, 2024, and May 31, 2023, respectively.
Previous wording
The Company accounts for stock options in accordance with ASC 718-10, “Compensation-Stock Compensation.” Under this method, compensation costs include the estimated grant-date fair value of awards amortized over the options’ vesting period. Stock-based compensation costs, not including shares issued to directors for services, was $1.6 million and $1.2 million for the three months ended February 29, 2024, and February 28, 2023, respectively, and $2.9 million and $2.0 million for the six months ended February 29, 2024, and February 28, 2023, respectively.
Current wording
The Company accounts for stock options in accordance with ASC 718-10, “Compensation-Stock Compensation.” Under this method, compensation costs include the estimated grant-date fair value of awards amortized over the options’ vesting period. Stock-based compensation costs, not including shares issued to directors for services, was $1.7 million and $1.1 million for the three months ended May 31, 2024, and May 31, 2023, respectively, and $4.6 million and $3.2 million for the nine months ended May 31, 2024, and May 31, 2023, respectively.