Simulations Plus, Inc. (NASDAQ: SLP), a leading provider of simulation and modeling software for pharmaceutical discovery and development, today reported financial results for its third quarter of fiscal year 2012 ended May 31, 2012 (3QFY12). Results below are reported for continuing operations (without the discontinued operations of the Company’s former Words+ subsidiary), except as noted.

3QFY12 highlights compared with 3QFY11:

• Net sales increased 5.0% to $2.77 million from $2.64 million
• Gross profit increased 6.8% to $2.33 million from $2.19 million
• Gross margin increased to 84.2% from 82.8%
• SG&A increased 14.5% to $0.891 million from $0.778 million due to:
  • Increased costs for health, dental, liability, and workers’ compensation insurance
  • Increased marketing and sales expenses for travel and scientific meetings/conferences
  • Expanded staff, as well as increased salaries and bonuses to existing staff
  • All facility rent and related expenses are now charged to Simulations Plus after sale of Words+
  • As a percent of revenues, SG&A increased to 32.2% from 29.5%
• R&D expense increased 129% to $228,000 from $100,000 due to:
  • Staff expansions as well as salary and bonus increases for existing staff
  • Investments in our new chemical entity (NCE) project designing molecules for malaria
• Income before taxes decreased 5.4% to $1.29 million from $1.37 million due to higher SG&A expenses and higher R&D investment
• Net income from continuing operations decreased 16.8% to $869,000 from $1,044[C2] ,000
• Diluted earnings per share decreased to $0.05 ($0.053) per share compared to $0.07 ($0.066) per share
• Cash increased 30.3% to $12.89 million from $9.89 million, after paying dividends of $1.6 million
• Shareholders’ equity increased 13.0% to $15.6 million from $13.8 million.

For the first nine months of fiscal year 2012 (9moFY12) compared to the first nine months of FY2011 (9moFY11):

• Net sales increased 6.8% to a new 9-month record $7.81 million from $7.31 million
• Gross profit increased 9.1% to $6.62 million from $6.07 million
• Gross margin increased to 84.8% from 83.0%
• SG&A increased 15.1% to $2.55 million from $2.21 million for the reasons cited above
• As a percent of revenues, SG&A increased to 32.6% from 30.3% compared to 9moFY11
• R&D expense increased 73.9% to $745,000 from $428,000
• Income before taxes increased 2.2% to $3.62 million from $3.54 million
• Net income from continuing operations decreased 0.97% to $2.463 million from $2.487 million
• Net income including discontinued operations increased 5.9% to $2.68 million from $2.53 million
• Total diluted earnings per share increased 6.2% to $0.17 ($0.167) from $0.16 ($0.157)

Ms. Momoko Beran, chief financial officer of Simulations Plus, said: “Nonrecurring charges and other elements of increased SG&A had an impact on gross profit and pretax earnings for the first nine months. SG&A increases over last year’s first nine months included a one-time charge for our M&A consultants for the sale of our former Words+ subsidiary, increases in overhead staff and salaries, increased marketing and sales expenses, increased year-end bonuses, and the fact that we now accrue 100% of the building lease and facility-related expenses to SG&A, which includes the 50% that had previously been paid by Words+. Words+ continues to rent a smaller portion of the building (20%) but their contribution to the building leases and related costs is not included in SG&A, but is reported as Other Income. Last quarter we estimated that SG&A would be somewhat higher going forward by approximately $130,000 per quarter, and in fact, for the first nine months it is higher by about $334,000, or slightly more than $111,000 per quarter to date. We have increased our R&D spending both by increasing the scientific staff and through our investment in our malaria new chemical entity (NCE) project, resulting in the 129% increase in R&D for the third quarter and 73.9% increase for the first nine months. During the third quarter we paid both our first and our second ongoing quarterly cash dividends of $0.05 per share per quarter, totaling just under $1.6 million. Even after paying both dividends, cash increased by just over 30% from last year’s third quarter. As of yesterday, cash was approximately $13.3 million.”

Walt Woltosz, chairman and chief executive officer of Simulations Plus, added: “Consulting services have been a bit slower so far this fiscal year, so software licenses have made up for the decrease in those revenues and then added to growth. For the first nine months, software licenses increased $770,000, or 12%. Our recently announced funded collaborations for expanding the oral cavity dosing model and adding a transdermal dosing model in GastroPlus™ will begin to be reflected in the current fourth quarter revenues. We believe the investment in our malaria NCE project has shown remarkable results, demonstrating the power of our ADMET Design Suite™ for new molecule design. Just yesterday we received the lab results for our four final compounds and, once again, they are all active against the malaria parasite, although they’re not as potent as two of our earlier molecules. Nonetheless, every molecule we designed has hit the target, and we do not know of any other software company that has taken the risk to design, synthesize, and test completely new molecules. We plan to repeat this demonstration for a different disease target this calendar year, and we plan to seek partners to take the results of our work to date on malaria to the next level.”

The Company has announced an investor conference call that will be webcast live at 1:15 PT/4:15 PM ET today, Thursday, July 12, 2012, which may be accessed by first registering at the following website: https://www2.gotomeeting.com/register/448603106. Upon registering, you will receive a confirmation e-mail with a unique link and instructions for joining the call. Please dial in five to ten minutes prior to the scheduled start time. For listen-only mode, you may dial (415) 363-0078, and enter access code 855-469-584.

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