Update: Simulations Plus, Inc. Earnings

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 |  About: Simulations Plus, Inc. (SLP)
by: Joseph P. Porter

Summary

Company fiscal year 2014 third quarter results show significant earnings growth.

Activities thus far are in keeping with my assessment and observations of a year ago.

Financial results and recent hiring confirm my belief that this company is still a strong buy.

Simulations Plus, Inc. (NASDAQ:SLP) has released figures for its Q3 FY 2014 performance (ended May 31, 2014) showing a year-over-year ("YOY") increase of 20% in third-quarter revenues (to $3.74 million from $3.09 million). For the nine months ended on May 31, YOY revenues grew by more than 11%, to $9.46 million in 2014 from $8.50 million in 2013.

Future revenue growth will be enhanced by a reduction in royalties paid by Simulations Plus for certain of its technologies; notably, in May 2014, an agreement was reached with Therapeutic Systems Research Laboratories ("TSRL") to pay TSRL $6 million for software technology Simulations Plus had licensed from them, and for which the company paid annual royalties of up to $626,000 per year. The $6 million will be amortized over a ten-year period, ultimately costing the company nothing, while saving the company royalty expenses. The software technology is used in Simulations Plus' GastroPlus.

The company has achieved a better-than-90% retention rate in renewals for the quarter; Simulations Plus also added 20 new customers in the quarter. Additionally, the Environmental Protection Agency ("EPA") purchased several software licenses from the company, and expansion into the Asian market has accounted for 18% of the company's revenues.

As stated in my article of a year ago, Simulations Plus had a need to increase the number of staff. It has done so, adding four new Ph.D.s to its staff, as well as one aerospace engineer as the company seeks to expand its simulation efforts into aerodynamics. This addresses the one weakness I found with the company, making it clearer to me that this is a company to follow not just for the short term, but as a long-term investment.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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