Simulations Plus, Inc.

Previous wording

Revenues increased by $4.4 million, or 31%, to $18.9 million for the three months ended November 30, 2024, compared to $14.5 million for the three months ended November 30, 2023. This increase is primarily due to a $3.1 million, or 41%, increase in software-related revenue and a $1.3 million, or 19%, increase in service-related revenue when compared to the three months ended November 30, 2023. The software-related revenue increase of $3.1 million, or 41%, compared to the three months ended November 30, 2023, was primarily due to additional revenue from ALI of $1.7 million, higher revenues from CPP-software of $0.7 million, and higher revenues from QSP-software $0.4 million. The service-related revenue increase of $1.3 million, or 19%, compared to the three months ended November 30, 2023, was primarily due to additional revenue from MC of $1.9 million, offset by lower revenue from QSP-services of $0.3 million and lower revenue from CPP-services of $0.2 million.

Current wording

Revenues increased by $4.1 million, or 23%, to $22.4 million for the three months ended February 28, 2025, compared to $18.3 million for the three months ended February 29, 2024. This increase is primarily due to a $1.9 million, or 16%, increase in software-related revenue and a $2.3 million, or 34%, increase in service-related revenue when compared to the three months ended February 29, 2024. The software-related revenue increase of $1.9 million, or 16%, compared to the three months ended February 29, 2024, was primarily due to additional revenue from ALI of $0.9 million, higher revenues from QSP of $0.4 million, higher revenues from CPP of $0.3 million, and higher revenues from CHEM of $0.2 million. The service-related revenue increase of $2.3 million or 34%, compared to the three months ended February 29, 2024, was primarily due to additional revenue from MC of $2.3 million, higher revenues from CPP of $0.6 million, offset by lower revenue from PBPK of $0.5 million.

Previous wording

Cost of revenues increased by $4.1 million, or 87%, for the three months ended November 30, 2024, compared to the three months ended November 30, 2023. This increase is primarily due to a $1.6 million or 166%, increase in software-related cost and a $2.4 million or 66%, increase in service-related costs. The software-related costs increase of $1.6 million or 166%, compared to the three months ended November 30, 2023, was primarily due to additional costs from ALI of $1.0 million, $0.4 million of higher amortization of capitalized software cost, $0.3 million of costs due to increased revenues, offset by a decrease of $0.2 million of fully amortized TSRL in the third quarter of fiscal year 2024. The service-related costs increase of $2.4 million or 66%, compared to the three months ended November 30, 2023, was primarily due to additional costs from MC of $1.5 million, and $0.8 million shift from G&A expense to cost of revenues, due to the reorganization of our internal structure from divisions to business units. The $0.8 million increase in cost of revenues corresponds to the $0.8 million decrease in general and administrative expenses discussed below.

Current wording

Cost of revenues increased by $4.2 million, or 83%, for the three months ended February 28, 2025, compared to the three months ended February 29, 2024. This increase is primarily due to a $1.2 million or 92%, increase in software-related cost and a $3.0 million or 80%, increase in service-related costs. The software-related costs increase of $1.2 million or 92%, compared to the three months ended February 29, 2024, was primarily due to additional amortization of $0.8 million as a result of the acquisition of Pro-ficiency, $0.4 million of higher amortization of capitalized software cost, offset by a decrease of $0.2 million of the Therapeutic Systems Research Laboratories (“TSRL”) agreement being fully amortized in the third quarter of fiscal year 2024. The service-related costs increase of $3.0 million or 80%, compared to the three months ended February 29, 2024, was primarily due to additional costs from MC of $1.6 million, $0.2 million of higher accrued bonuses, and a $0.8 million shift from G&A expense to cost of revenues, due to the reorganization of our internal structure from divisions to business units. The $0.8 million increase in cost of revenues corresponds to the $0.8 million decrease in general and administrative expenses discussed below.

Previous wording

Overall gross margin percentage was 54% and 68% for the three months ended November 30, 2024 and 2023, respectively.

Current wording

Overall gross margin percentage was 59% and 72% for the three months ended February 28, 2025 and 2024, respectively.

Previous wording

We incurred $2.6 million of research and development costs during the three months ended November 30, 2024. Of this amount, $0.7 million was capitalized as a part of capitalized software development costs and $1.8 million was expensed. We incurred $2.2 million of research and development costs during the three months ended November 30, 2023. Of this amount, $0.9 million was capitalized and $1.2 million was expensed. Research and development spend increased by $0.4 million, or 19%, for the three months ended November 30, 2024, compared to the three months ended November 30, 2023, primarily due to an increase of $0.4 million from the acquisition of Pro-ficiency. This corresponds to a 2% increase in research and development expense as a percentage of revenue.

Current wording

We incurred $2.9 million of research and development costs during the three months ended February 28, 2025. Of this amount, $0.8 million was capitalized as part of capitalized software development costs and $2.1 million was expensed. 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, and $1.3 million was expensed. Research and development spend increased by $0.8 million, or 38%, for the three months ended February 28, 2025, compared to the three months ended February 29, 2024, primarily due to an increase of $0.5 million from the acquisition of Pro-ficiency. The overall increase of $0.8 million, or 38%, corresponds to a 1% increase in research and development expense as a percentage of revenue.

Previous wording

The provision for income taxes was $0.1 million for the three months ended November 30, 2024, compared to $0.5 million for the three months ended November 30, 2023. Our effective tax rate was at 24% for the three months ended November 30, 2024, compared to 19% for the three months ended November 30, 2023.

Current wording

The provision for income taxes was $0.4 million for the three months ended February 28, 2025, compared to $1.2 million for the three months ended February 29, 2024. Our effective tax rate decreased to 12% mainly due to disqualifying dispositions of incentive stock options for the three months ended February 28, 2025, when compared to 23% for the three months ended February 29, 2024.

Previous wording

Gross profit increased by $0.4 million or 4%, to $10.2 million for the three months ended November 30, 2024, compared to $9.8 million for the three months ended November 30, 2023. The gross profit increased in our software business by $1.5 million, or 22%, and decreased for our services business by $1.1 million, or 34%.

Current wording

Gross profit increased by $0.3 million or 1%, to $23.3 million for the six months ended February 28, 2025, compared to $23.1 million for the six months ended February 29, 2024. The gross profit increased in our software business by $2.1 million, or 13%, and decreased for our services business by $1.8 million, or 30%, for the three months ended February 28, 2025, compared to the three months ended February 29, 2024.

Previous wording

Sales and marketing expenses increased by $0.9 million, or 43%, to $2.9 million for the three months ended November 30, 2024, compared to $2.0 million for the three months ended November 30, 2023. This corresponds to a 1% increase in sales and marketing expense as a percentage of revenue. The increase was primarily due to an increase of $0.6 million from the acquisition of Pro-ficiency.

Current wording

Sales and marketing expenses increased by $2.6 million, or 67%, to $6.6 million for the six months ended February 28, 2025, compared to $3.9 million for the six months ended February 29, 2024. This corresponds to a 4% increase in sales and marketing expense as a percentage of revenue. The increase was primarily due to an increase of $0.8 million from the acquisition of Pro-ficiency, $0.9 million in higher event-related spending to enhance brand awareness and customer engagement, increased sales commission of $0.3 million, and increased headcounts of $0.1 million. This strategic investment in sales and marketing reflects our ongoing efforts to drive growth, strengthen market presence, and improve customer engagement.

Previous wording

General, and administrative (“G&A”) expenses decreased by $0.3 million, or 5%, to $5.4 million for the three months ended November 30, 2024, compared to $5.7 million for the three months ended November 30, 2023. This corresponds to an 11% decrease in G&A expense as a percentage of revenue. The decrease is primarily driven by a $0.8 million shift from G&A expense to cost of revenues, as referenced above, due to the reorganization of our internal structure from divisions to business units, offset by an increase of $0.4 million from the acquisition of Pro-ficiency.

Current wording

General, and administrative (“G&A”) expenses decreased by $1.3 million, or 11%, to $9.9 million for the six months ended February 28, 2025, compared to $11.2 million for the six months ended February 29, 2024. This corresponds to an 11% decrease in G&A expense as a percentage of revenue. The decrease is primarily driven by a $1.6 million shift from G&A expense to cost of revenues, as referenced above, due to the reorganization of our internal structure from divisions to business units, offset by an increase of $0.5 million from the acquisition of Pro-ficiency.

Previous wording

Total other income was $0.1 million for the three months ended November 30, 2024, compared to total other income of $1.4 million for the three months ended November 30, 2023. $1.1 million of the decrease in interest income is attributable to the usage of cash from investment in debt securities to acquire Pro-ficiency.

Current wording

Total other income was $0.9 million for the six months ended February 28, 2025, compared to total other income of $2.3 million for the six months ended February 29, 2024. $2.3 million of the decrease in interest income is attributable to the use of cash from investment in debt securities to acquire Pro-ficiency, partially offset by a $1.0 million increase due to the decrease in the fair value of the Immunetrics earnout liability, as no earnout payment is anticipated related to the second earnout measurement period.

Previous wording

At November 30, 2024, the Company had $6.2 million in cash and cash equivalents, $12.0 million in short-term investments, and working capital of $30.7 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 wording

At February 28, 2025, the Company had $11.0 million in cash and cash equivalents, $10.4 million in short-term investments, and working capital of $36.0 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.

Previous wording

Net cash used in operating activities was $1.3 million for the three months ended November 30, 2024. Our operating cash flows resulted in part from our net income of $0.2 million, offset by cash payments we made to third parties for their services and employee compensation. The changes in liabilities balances were primarily driven by annual bonus payments of $1.8 million, $1.1 million payments of accrued expenses, and one-time severance payments of $0.3 million. The changes in balances of accounts receivable of $3.7 million was primarily due to invoicing that occurred closer to the end of the current quarter.

Current wording

Net cash provided by operating activities was $4.4 million for the six months ended February 28, 2025. Our operating cash flows resulted in part from our net income of $3.3 million, offset by cash payments we made to third parties for their services and employee compensation. The changes in balances of assets of $6.2 million was primarily due to change in accounts receivables driven by higher revenues and invoicing that occurred closer to the end of the current quarter. The changes in liabilities balances of $1.2 million were primarily due to higher deferred revenues of $1.4 million driven by higher invoicing that occurred closer to the end of the current quarter and timing of revenue recognition.

Previous wording

Net cash provided by operating activities was $0.2 million for the three months ended November 30, 2023. Our operating cash flows resulted primarily from our net income of $1.9 million. In addition, $3.3 million related to changes in balances of operating assets and liabilities was added to net income and $1.5 million related to noncash charges was added to net income to reconcile to cash flow from operations. The changes in balances of other liabilities of $2.1 million were primarily driven by annual bonus payments of $3.1 million offset by bonus accrual of $1.0 million. The changes in balances of prepaid expenses and other current assets is primarily due to increase in prepaid expenses of $1.1 million.

Current wording

Net cash provided by operating activities was $6.0 million for the six months ended February 29, 2024. Our operating cash flows resulted primarily from our net income of $6.0 million. In addition, $3.9 million related to changes in balances of operating assets and liabilities was added to net income and $3.9 million related to noncash charges was added to net income to reconcile to cash flow from operations. The changes in balances of other liabilities of $1.1 million were primarily driven by accrued liabilities of $2.4 million for investments, bonus accrual of $2.4 million, offset by $3.1 million of bonus payments and lower deferred revenues of $0.6 million. The changes in balances of prepaid expenses and other current assets are primarily due to increase in accounts receivables driven by timing of invoicing and an increase in prepaid expenses of $1.7 million.

Previous wording

Net cash used in operating activities decreased by $1.4 million during the three months ended November 30, 2024, compared to the three months ended November 30, 2023. This decrease was driven by working capital changes as explained above for both comparative periods.

Current wording

Net cash provided by operating activities decreased by $1.6 million during the six months ended February 28, 2025, compared to the six months ended February 29, 2024. This decrease was driven by drivers as explained above for both comparative periods.

Previous wording

Net cash used in investing activities during the three months ended November 30, 2024, was $3.1 million, primarily due to purchase of short-term investments of $3.5 million and computer software development costs of $0.6 million, offset by proceeds from maturities of short-term investments of $1.5 million.

Current wording

Net cash used in investing activities during the six months ended February 28, 2025, was $2.5 million, primarily due to purchase of short-term investments of $5.0 million and computer software development costs of $1.3 million, offset by proceeds from maturities of short-term investments of $3.6 million.

Previous wording

Net cash used in investing activities during the three months ended November 30, 2023, was $16.9 million, primarily due to purchase of short-term investments of $30.5 million and computer software development costs of $0.9 million, offset by the proceeds from maturities of short-term investments of $14.8 million.

Current wording

Net cash used in investing activities during the six months ended February 29, 2024, was $24.4 million, primarily due to purchase of short-term investments of $49.0 million, purchase of long-term investments of $58.0 million, and computer software development costs of $1.7 million, offset by the proceeds from maturities of short-term investments of $36.3 million.

Previous wording

Net cash provided by financing activities during the three months ended November 30, 2024, was $0.3 million, primarily due to proceeds from the exercise of stock options totaling $0.3 million.

Current wording

Net cash used in financing activities during the six months ended February 28, 2025, was $1.3 million, primarily due to cash settlement of $1.6 million from the holdback obligation related to the Immunetrics acquisition, offset by proceeds from the exercise of stock options totaling $0.3 million.

Previous wording

Net cash used in financing activities during three months ended November 30, 2023, was $1.0 million, primarily due to dividend payments totaling $1.2 million, offset by proceeds from the exercise of stock options totaling $0.2 million.

Current wording

Net cash used in financing activities during six months ended February 29, 2024, was $2.1 million, primarily due to dividend payments totaling $2.4 million, offset by proceeds from the exercise of stock options totaling $0.3 million.

Previous wording

For the three months ended November 30, 2024 and 2023, respectively, we did not repurchase any shares of Company stock. As of November 30, 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 wording

For the three and six months ended February 28, 2025, and February 29, 2024, respectively, we did not repurchase any shares of Company stock. As of February 28, 2025, $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.

Previous wording

We generate revenue primarily from the sale of software licenses, and providing consulting services to the pharmaceutical industry for drug development.

Current wording

We generate revenue primarily from the sale of software licenses, providing consulting services, and customizing a software platform tailored to the pharmaceutical industry for drug development.

Previous wording

The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. Contracts generally have fixed pricing terms and are not subject to variable pricing. The Company considers the nature and significance of each specific performance obligation under a contract when allocating the proceeds under each contract. Accounting for contracts includes significant judgement in the estimation of estimated hours/cost to be incurred on consulting contracts, and thede minimis nature of the post-sales costs associated with software sales.

Current wording

The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. Contracts generally have fixed pricing terms and are not subject to variable pricing. The Company considers the nature and significance of each specific performance obligation under a contract when allocating the proceeds under each contract. Accounting for contracts includes significant judgement in the estimation of hours/cost to be incurred on consulting contracts, and thede minimis nature of the post-sales costs associated with software sales.

Previous wording

Software development costs are capitalized in accordance with ASC 985-20, “Costs of Software to Be Sold, Leased, or Marketed.” Capitalization of software development costs begins upon the establishment of technological feasibility and is discontinued when the product is available for sale. 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 $0.7 million and $0.9 million for the three months ended November 30, 2024 and 2023, respectively.

Current wording

Software development costs are capitalized in accordance with ASC 985-20, “Costs of Software to Be Sold, Leased, or Marketed.” Capitalization of software development costs begins upon the establishment of technological feasibility and is discontinued when the product is available for sale. 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 $0.8 million for the three months ended February 28, 2025, and February 29, 2024, respectively, and $1.5 million and $1.8 million for the six months ended February 28, 2025, and February 29, 2024, 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 $0.8 million and $0.4 million, respectively for the three months ended November 30, 2024 and 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 $0.8 million and $0.4 million, respectively, for the three months ended February 28, 2025, and February 29, 2024, respectively, and $1.6 million and $0.8 million for the six months ended February 28, 2025, and February 29, 2024, respectively. We expect future amortization expense to vary due to variations in capitalized computer software development costs.

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 November 30, 2024, after completion of the Company's internal reorganization, the Company determined that it had six reporting units: CHEM, PBPK, QSP, CPP, MC, and ALI.

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 February 28, 2025, the Company determined that it had six reporting units: CHEM, PBPK, QSP, CPP, MC, and ALI.

Previous wording

As of November 30, 2024, the entire balance of goodwill was attributed to four of the Company's reporting units, CPP, QSP, ALI, and MC. 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 months ended November 30, 2024 and 2023, respectively.

Current wording

As of February 28, 2025, the entire balance of goodwill was attributed to four of the Company's reporting units, CPP, QSP, ALI, and MC. 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 28, 2025, and February 29, 2024, 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 $1.7 million and $1.3 million, for the three months ending November 30, 2024 and 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, were $1.6 million and $1.6 million, for the three months ended February 28, 2025, and February 29, 2024, respectively, and $3.3 million and $2.9 million for the six months ended February 28, 2025, and February 29, 2024, respectively.