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Simulations Plus (SLP) Stock Down Despite Q1 Earnings Beat

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Simulations Plus (SLP - Free Report) reported first-quarter fiscal 2021 earnings of 12 cents per share up 9% on a year-over-year basis and beat the Zacks Consensus Estimate by 9.1%.

Moreover, revenues of $10.7 million surpassed the consensus mark by 1.35% and improved 14% year over year. Further, services backlog at the end of the reported quarter was $12 million, up 14% sequentially.

However, difficulty in winning deal renewals due to disruption caused by the pandemic affected results. Management noted that “renewal churn from the client budgetary process continued” into the reported quarter. Notably, renewal rate came in at 92% based upon fees, which compares with renewal rate of 97% in the prior-year period. This may have hurt investor sentiments. Shares of Simulations Plus declined 10.6% on Jan 12, following first-quarter fiscal 2021 results.

Nevertheless, the stock has soared 117.7% in the past year, compared with the industry’s growth of 29%.


 

The outperformance can be attributed to investors’ optimism regarding strategic investments in sales and marketing infrastructure, and growing clout of modeling and simulation solutions across the drug development ecosystem that is facilitating strong revenue growth.

Moreover, Lixoft buyout has expanded the company’s total addressable market (TAM) and increased the mix of software revenues, which bodes well for profitability.

Also, the company has inked a large COVID-related consulting services project with a large pharmaceutical client. Further, it won a new three-year deal with a large private foundation, and three new projects are in the pipeline with a large non-profit biotechnology institute.

Operating Details

Gross margin in the quarter under review was 77%, up 500 basis points (bps) year over year.

Simulations Plus, Inc. Price, Consensus and EPS Surprise

Simulations Plus, Inc. Price, Consensus and EPS Surprise

Simulations Plus, Inc. price-consensus-eps-surprise-chart | Simulations Plus, Inc. Quote

Total operating expenses as a percentage of revenues expanded 580 bps to year over year 48.8%.

Non-GAAP operating income margin contracted 40 bps to 28.5% on a year-over-year basis.

 

Balance Sheet

As of Nov 30, 2020, cash and cash equivalents were $27.7 million compared with $49.2 million as of Aug 31, 2020.

The company declared a cash dividend of 6 cents per share payable Feb 1, 2021, to stockholders as of Jan 25, 2021.

Fiscal 2021 Outlook

Management believes strong demand for consulting services and optimism surrounding next generation software products scheduled for release in fiscal 2021 will help the company to sustain organic growth in the range of 15% to 20%. Markedly, it delivered organic growth of 18% in fiscal year 2020. Management anticipates incremental Lixoft’s Monolix revenues to contribute 3-5% to the top line over the organic growth.

Zacks Rank & Stocks to Consider

Currently, Simulations Plus has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector worth considering are Apple (AAPL - Free Report) , Alphabet (GOOGL - Free Report) and NVIDIA (NVDA - Free Report) . NVIDIA sports a Zacks Rank #1 (Strong Buy), while Apple and Alphabet carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Apple, Alphabet and NVIDIA is currently pegged at 11.5%, 16.93%, and 18.26%, respectively.

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