Good afternoon, it is Tuesday, April 14, 2015, and on behalf of Simulations Plus, I welcome you to our second quarter fiscal year 2015 financial results conference call and webinar. Company President Ted Grasela will be presenting this afternoon. Joining Ted are Chairman and CEO Walt Woltosz, Chief Financial Officer John Kneisel, and Vice President of Marketing and Sales John DiBella. An opportunity to ask questions will follow Ted's presentation. [Operator Instructions] It's now my pleasure to turn the presentation over to Walt Woltosz, Chairman and CEO of Simulations Plus.

Thank you, Renee, and welcome, everyone, to our second quarter and six-month fiscal year 2015 conference call. We’ve had an exciting six months with the combination of Simulations Plus and Cognigen. As part of that, those of you that have been following us will remember that I have cut back to 60% time, or trying to, and one of the ways that I’m doing that is to ask Ted to take over a number of functions, including investor relations. And so I’m going to turn the presentation over to Ted. I will hang on in case there are any questions that I need to answer, but for now, Ted, the floor is yours.

Thanks very much, Walt. Good afternoon everyone. I’m going to walk us through the financial results for the second quarter of this fiscal year, 2015, and then also give a summary of the first six months of this fiscal year. In terms of Safe Harbor statement, I know you’re all familiar with this. With the exception of historical information, the matters discussed in this presentation are forward-looking statements that involve a number of risks and uncertainties. The actual results of the company could differ significantly from those statements. Factors that could cause or contribute to such differences include, but are not limited to, continuing demand for the company's products, competitive factors, the company's ability to finance future growth, the company's ability to produce and market new products in a timely fashion, the company's ability to continue to attract and retain skilled personnel, and the company's ability to sustain or improve current levels of productivity. Further information on the company's risk factors is contained in the company's quarterly and annual reports and filed with the Securities and Exchange Commission. As an overview of Simulations Plus, we are a major provider of software and consulting services for pharmaceutical research and development companies. Our expertise and software tools span from the earliest drug discovery efforts through clinical trials and beyond patent life as we support generic drug companies. In addition, new applications are being explored in aerospace and general healthcare and I’ll speak about those briefly during the presentation. The acquisition of Cognigen Corporation in September 2014 more than doubled our workforce and is expected to add between $4.8 million to $5 million in revenue for fiscal year 2015. During today’s presentation, I’ll be presenting consolidated results and also give a breakout where warranted. Overall, for second quarter fiscal year 2015, revenues increased…

Howard [Halpern] has a number of questions. The first is, “Can you provide an update regarding Cognigen working toward penetrating the clinical pharmacology departments using ADMET Predictor and GastroPlus. Will your efforts translate into new products or enhanced service offerings to Cognigen customers, with added revenue and gross margin potential?”

This has been, without a doubt, one of the most deciding aspects of the post-acquisition interactions with Simulations Plus. Simulations Plus has not served the clinical pharmacology community in the past, and the clients that we work with as we talk through the problems that they’re facing, often find it valuable to bring Simulations Plus scientists into the discussion. And we have worked on a few projects over the last six months where we’re now using GastroPlus to answer these questions that would have previously been not available as a solution to Cognigen So I’m very happy about that, and I think that we’re going to continue to find new opportunities for that. At a clinical pharmacology meeting, I was describing the capabilities of ADMET Predictor to a number of clients, and they were interested in that ability to predict the metabolism of compounds. It wasn’t something that they were familiar with, and I think that represents an important place that we will be demonstrating the software in the future. Whether these efforts will translate into new products is unclear at the present time, but they can certainly enhance our service opportunities as we have seen. Regulatory agencies have been quite eager to entertain these in silico predictions of how problems are likely to play out in patient populations, and so I certainly see that we’ll be continuing to offer consulting services around these programs. And of course, as we increase sales revenue, we expect to increase our gross profit margin.

Howard has another question, and I believe you addressed this in your presentation. “What is the status of the KIWI offering, and can we anticipate future revenue streams from this offering?”

We have been continuing to talk with regulatory agencies about what their expectations are in being able to review complicated modeling and simulation results, and have received some tentative favorable comments with respect to KIWI capabilities. We are continuing to add functionality and the meeting that we’re about to attend in June of 2015 is a meeting where a significant number of scientists who perform modeling and simulation attend. So we plan to have a large presence at that meeting and continue to market the product. We’ve implemented a series of email blasts that focus on different aspects of KIWI and continue to push on its functionality.

The next question from Howard is, “How close are the aerospace and MRI offerings to obtaining revenue generating customers?”

We submitted a proposal to the NIH recently under their omnibus grant, SBIR program. That’s one where they have a series of topics that they announced and asked for people to submit proposals that are generally addressing those topics. There is a specific topic for computer aided interpretation of imaging data from MRI and other scanning methods, so we responded to that, just submitted that one last Monday. [It will be months] before the evaluation process is completed, and when we know whether we have won a Phase I award. If we do, Phase I is $150,000 for six months, successful Phase I, and we believe we’re already successful in the efforts that we did before the proposal. But a successful Phase I could lead to a Phase II, which is $1 million over two years. On the aerospace side, we are in contact with a number of organizations in the aerospace industry, both military and industrial. We have some interest expressed. We have not yet identified any specific funding mechanisms such as an SBIR grant or a direct contract, but we are hoping that in the next few months, we’ll have something to announce on that front.

Howard’s next question is, “With regulatory agencies worldwide increasing their adoption of GastroPlus and ADMET Predictor, what are you seeing or anticipating to be the response by all the companies that must go through the regulatory submission process?”

It’s certainly a positive sign that the regulatory agencies are expressing interest in the software. In the past, when the FDA showed an interest in physiologic based PK modeling, the companies quickly followed suit, and there was a bump in terms of the number of applications to the FDA that included modeling and simulations. It is difficult to find a submission to a regulatory agency now that does not have modeling and simulation of some sort. The regulatory agencies, as well as the scientists who lead the drug development programs, have come to recognize the value of modeling and simulation, whether it’s the types of clinical pharmacology modeling that Cognigen has done in the past or the physiologic based PK modeling that GastroPlus enables, both kinds of modeling have been seeing an increase. And that’s represented in the number of new customers that we have each quarter, so I think that is a trend that will continue as we go forward.

Jack Wallace now has a few questions. “What percent of sales is to core simulations plus, or to CROs, and are you seeing increased interest from these types of organizations?” He also asks, “Has the [Wu Shi] relationship grown since that account signed on?”

The percentage of sales today from CROs is relatively small. It’s somewhere around 4%, but there is certainly an increased interest coming from these organizations. It seems as though a number of their clients are asking for QSAR or PB/PK modeling and simulation services. And so they have approached us wanting to learn a little bit more about licensing and especially I think wanting to learn a little bit more about training and education opportunities, because there is still that hurdle of making sure that these CROs have people on their staff who can utilize the tools appropriately. So there’s definitely some increased interest over the last six months to a year or so. And then the Wu Shi relationship is in fact growing. Hopefully very soon we’ll be closing on another contract with them where they’re going to be adding some licenses of other products.

Here’s another question from Jack Wallace. “Have there been any changes to the competitive landscape in the last year? Also, any notable transactions worth mentioning?”

The pharmaceutical companies continue to consolidate, but the number of drug development programs that are actively underway has been increasing in that face of consolidation. So in terms of the numbers of programs that require support, that has been a fairly healthy pipeline for the pharmaceutical and biotechnology companies. I don’t know that there’s any change that’s going to happen in that landscape going forward, other than what we’re already seeing now. I don’t see anything different from what I see now.

We have a question from Richard [Magnuson]. “What percent of revenue was attributable to each of GastroPlus and ADMET for the fourth quarter? And what is the percent expected to be attributed to each for the current year?”

I’ve got the numbers here. On a consolidated basis, GastroPlus was about 44% of the revenues and ADMET was about 15%. Of Simulations Plus, it was 62% and 20% for the quarter. I don’t see those changing that much, John.

No, I don’t think so. In fact, with the new features coming out in the next releases of the software, I would expect those percentages to hold, if not increase slightly.

Here’s a question from Brendan Rose. “You said ADMET Predictor is one of about 15 QSAR offerings on the market. More crowded than GastroPlus. Assumedly, QSAR would be healthier if it consolidated large user bases, [sped] innovation, and reduced unit costs. Regarding market share consolidation, what’s happening? What are the obstacles, and how does SLP see this shaking out long run?”

This is similar to the question that we had previously in terms of market consolidation in the pharmaceutical and biotechnology industry. Again, I think that companies have been consolidating but it’s been leading to more and more drug development programs that are actively underway. In terms of ADMET Predictor being in a crowded marketplace, it is true. However, one of the real strengths of Simulations Plus has been the close collaborations that the company scientists have had with the users of the software. In the last year, we’ve had a wonderful collaboration with Bayer Healthcare that led to a dramatic improvement in the accuracy of our predictions for certain properties of molecules from their structure. And so that has led to continuing discussions with other companies trying to replicate that improvement in accuracy by collaborations with Simulations Plus. And we certainly encourage those sorts of collaborations and are actively looking for them as a way of differentiating our products from others.

Let me step in a little bit on that too. We always are on the lookout for good acquisitions. This field’s 15 or perhaps even 20 other organizations providing QSAR programs are more competitive than complementary. In other words, they’re predicting the same things we’re predicting, but with less accuracy. Unless such an acquisition would consolidate their revenues and earnings into ours, rather than taking them out of the market and having their market share spread out over all of the other competitors, unless that were to happen, then it really wouldn’t make sense for us to acquire, and of course the price would have to be right, and so on. So we keep an eye out for the potential for good acquisitions along that line in all of our lines, but to date, we just haven’t seen anything that’s been a good fit.

And I’m sorry, if you don’t mind, I’ll also throw in one additional comment that we do have some extremely valuable IP in terms of the QSAR models and their predictive accuracy, as Ted alluded to. And so we have also been engaging in some discussions with a few of these companies to see if there are any sort of distributorship or licensing of our models inside of their technology, any sort of agreements that could potentially be beneficial to both sides. So I think we’re also looking to see if there are ways in which we can expand our reach of our QSAR models inside of some existing platforms that scientists seem to like quite a bit.

Howard Halpern had one other question, and that is, “What is the gross margin on the KIWI software offering?”

We have only three licenses out to date, and they vary in complexity and size. And I think I’d prefer to not answer that question until we get a few more sales under our belt, and we can tell what the typical size of the sales are going to be.

Melvin [Lamar] has a question concerning a recent “60 Minutes” piece. “Duke University is doing tests using the polio virus as a possible cure for cancers such as glioblastoma, lung, and breast cancer. Is Simulations Plus involved in the research of this possible cancer cure? Also, is Simulations Plus involved in approval by the FDA to conduct the research?”

GastroPlus and the majority of our software are targeted towards small molecules. The exception would be the new modules, which we’re about to release, that deal with large molecules, proteins and antibodies. I’m not familiar with the study, but I believe if that they’re using the polio virus, it would have to be to change the genetic makeup of the cancer cells. And so I’m not sure that I would see an application of our software in that particular treatment stream. I don’t know, Walt, if you know anything more about that?

This is news to me. I’m not familiar with that study. To my knowledge, we were not involved, and I don’t believe Duke was using any of our software for that particular study.

Walter [Ramsley] has a few questions. His first is, “The $124,000 earned by Cognigen in Q2, is that pretax or after-tax?”

That’s after tax.

His next question, “Also, how much corporate overhead expense was charged to Cognigen in Q2?”

There’s very little expenses between the companies. They’re all pretty much standing on their own at this point.

Jack Wallace has another question. “To clarify, have there been any transactions in the biosimulation software space or notable clinical trial informatics company transactions?”

If you’re referring to in general, have there been any, there certainly hasn’t been any that we’ve been part of. I’m not aware of anything major in any of these at this point.

Brendan Rose has another question, back to the QSAR. “Would it be fair to assume that among the 15 QSAR offerings, some natural consolidation is occurring as SLP and a couple of other firms outgrow the laggards? In other words, consolidation through differential growth?”

John D, have you seen any of the smaller companies start to fade away?

I think so. If not fade away entirely, then they’re at least not being considered as strongly during evaluations and testing. So I think that’s a fair assumption to make.

Richard Magnuson has another question. “It seems that consulting is at approximately one third of revenue as guided at the end of Q4. Can we expect the consulting will continue to be one third of revenues into fiscal year 2016?

I think that’s pretty accurate. I don’t see the consulting revenue being more than one third of the total revenue, at least in the near term.

I think one possibility is that software sales could end up trending a bit stronger with the new capabilities that are coming out. And if we head something off with the Aero Modeler and MRI Modeler, it’s possible that consulting could, as a percentage, decrease. But as a dollar amount, we seem to be growing.

Eugene Robins has sent a couple of questions. His first question is, “When people roll off the software, are they lost due to just attrition or is [Sutara] taking share?

Certainly attrition. The renewals that were lost in this particular quarter all because of site closures or companies exiting the pharmaceutical business altogether. In fact, we did lose one relatively large order, high five figures, that we knew about back in September, when news came out that they were going to be getting out of the pharmaceuticals business. So if you disregard that order, renewal revenue was coming in at a rate of 97%. So it’s usually just going to always be due to attrition, not lost to competition.

And Eugene had one other question in relation to that. “Has that changed at all since the acquisition?”

No, I don’t think so.

Okay, well, that appears to be all the questions.

Okay, if there are no other questions, thank you all very much for your attention, and I look forward to sharing third quarter results with you in three months. Thank you.

Thank you, Ted. Before we let you go, we just want to mention that we are planning to present at the 16th annual B. Riley and Company investor conference in Hollywood, California, May 12 to 14. So we hope to see some of you there. This concludes today’s conference call and webinar. If you missed any part of today’s presentation, the replay will be available at our website, www.simulations-plus.com. Thank you for joining us, and have a wonderful afternoon.