Good afternoon. It’s Monday, April 9, 2018. On behalf of Simulations Plus, I welcome you to our Second Quarter Fiscal Year 2018 Financial Results Conference Call and Webinar. Presenting this afternoon will be CEO and Chairman, Walt Woltosz; Chief Financial Officer, John Kneisel; and Division Presidents, Ted Grasela of Cognigen and Brett Howell of DILIsym. An opportunity to ask questions will follow today’s presentations. You may send your written questions using the questions pane on your control panel or you may use the hand-raising icon on your control panel to ask your question directly. Please be sure to enter unique audio PIN displayed when you join the call. This call is being recorded for playback at our website, www.simulations-plus.com. Before we get started with the presentation, we’ll begin with the Safe Harbor Statement slide. It is now my pleasure to introduce Walt Woltosz, CEO and Chairman of Simulations Plus. Walt?

Thank you, Cameron and Renee. And hopefully everybody was able to read that Safe Harbor slide. I assume everyone on the call is familiar with the Safe Harbor. So, if I say expect or anticipate or words to that effect, please understand that that is our best understanding of how things are going at this time but there are no guarantees. So, as our attorneys like to say, there can be no assurances. So, I’ll review outstanding news to report. Revenues for the second quarter up almost 29%, $1.7 million to $7.4 million; income from operations, up almost 35% to $2.4 million; net income, up 190.6% to $3.5 million, which includes a one-time non-cash $1.5 million deferred tax adjustment as a result of the new 2018 tax law. Diluted earnings per share increased to $0.19 per share, up $0.13, $0.08 of that is due to the deferred tax. So, it still would be up $0.05 a share from the original $0.06 a share last year. Software renewal rates 89%, based on number of accounts and 94% based on fees and 15 new software clients added. For the six months, first half of 2018, revenues up again just under 30%, $3.3 million to $14.4 million. Income from operations -- it’s not accounting -- not including the deferred tax benefit, up $1.3 million or almost 34% to $5 million. Net income up $2.6 million or 103% to $5.2 million including the one-time non-cash $1.5 million deferred tax adjustment. And diluted earnings per share increased to $0.29 a share, up $0.14. That does include the deferred tax benefit. Software renewal rates 85% for accounts and 91% based on fees for the six months and 30 new -- 36 new software clients added. Our consulting pipeline has been -- it’s beautiful. Consulting demand and the industry since they just keep increasing and so we’ve seen a significant increase in our consulting revenues. And now, I will turn it over to John Kneisel, our Chief Financial Officer for his report. John?

Thank you, Walt. I appreciate it. As Walt said, our net revenues increased 28.5%, about $1.7 million for the second quarter of the fiscal year. Lancaster was up 12.6%, Buffalo was up 12.2%, and North Carolina or DILIsym recorded $939,000 worth of revenues in this quarter. This is their first second quarter of our fiscal year. They came on, on June 1, 2017. So, they mark part of the numbers in the prior year. So, they are $900,000 of that $1.7 million increase, the 28%. Our consolidated software revenues increased 10.6%, up $400,000, and our analytical study revenues up of $1.3 million. Our cost of revenues increased by $562,000. Of that, about $413,000 was the new costs that were at DILIsym for the quarter. Consolidated labor increased about $288,000 and other significant increases in costs were $182,000 of direct expenses on contracts, most of that coming from the North Carolina division on consulting contracts where they have to pay for lab testing costs. Software amortization was up about $46,000 and amortization expense associated with the acquired technologies -- the division was about $79,000. Our cost of revenues as a percentage of revenue increased by about 1.6% during this period compared to the prior year. Our consolidated gross margin increased about $1.9 million, to $5.2 million; DILIsym was $525,000 of that. They had about 56% gross margin this last quarter. The overall margin as a percentage of revenue decreased by about 1.6%. And decrease comes mainly from this higher blend of consulting revenues compared with the new division. Consulting revenues, if you can look at Buffalo and with North Carolina, they have a lower margin for those revenues because the higher percentage of labor costs associated with those consulting revenues, and in North America with the lab costs when we have…

Okay. John DiBella, the President of the Lancaster division is traveling. I think he is over in Asia somewhere this week. So, I will present his presentation for the Lancaster division. So, our software products, we have three upgrades coming out in the next few months. Version 9.6 GastroPlus, a flagship product that generates the largest share of the software revenues is scheduled for this month. This has been a lot of work on this one, going on in parallel with complete rewrite of GastroPlus into C++ at the same time, so, very, very busy group here doing some outstanding work. We’ve got some new special population, physiologies that are going in that will be enhancing one of our option that on modules. [Ph] Also, we’re improving all of our mechanistic absorption models in a variety of ways, again enhancements to an option right on margin. So, hopefully generate more sales in those optional modules. ADMET Predictor is our program that uses artificial intelligence to predict properties, molecules from their molecular structure. So, it’s been top rated and time-after-time in publications that compare various software programs and in various modeling challenges that come out every few years, we consistently perform, we have the top of all of the 100 or so competitors that go into those. Version 9 is scheduled for release next month. This will update our high throughput pharmacokinetics HTPK simulations module. This is unique capability to actually predict blood concentration versus time, bioavailability [indiscernible] for different dose levels, just for molecular structure. So, this is a new optional add-on module. We’re also improving the ADMET Modeler module. This is our artificial intelligence engine that we use to build our models. And we’ve applied that not only to pharmaceutical chemistry, but to some applications in some other industries…

Thanks, Walt. It’s a real pleasure actually to see how these numbers all add up to the performance of the Company. And it’s very rewarding to myself and our staff to see the responses that we’ve been getting from clients for our services. In 2018, we had relationships with 25 companies, working on a total of 38 drugs and 62 projects overall. So far in this fiscal year, we’ve started to work with two new companies. We have two new projects that are just starting. Of the old projects that we had, 11 of them expanded in scope. There were 30 projects with reduced scope, primarily because the drugs didn’t respond as they were expected to as part of the development program. And our pipeline is very healthy with 41 outstanding proposals with 28 different companies. Picking up on the theme that Walt talked about before about marketing of our services, really being based on interactions with our clients and communicating with both our clients and people we hope are going to be clients about the quality and the diversity of the work that we do. So, so far at scientific meetings, we’ve had 7 posters and 5 peer reviewed publications. One of our posters actually won a Blue Ribbon at a recent clinical pharmacology conference for the specification of the material that was presented. And while we’re -- when we’re not working on consulting projects, we’re working 20 publications and five conference abstracts for presentations of material at upcoming meetings. The PAGE meeting is the pharmacometrics meeting in Europe and we’ll be presenting two posters on new functionality that we’ve incorporated into the KIWI platform during that meeting. For a while now, the most common area that we work in has been oncology and that’s followed by neurology, endocrinology,…

All right. Thanks, Ted. This is Brett Howell, President of the DILIsym Services division. I just want to take a few moments to comment on our quarter as well. So, if you go to the next slide please. Since we are relatively new to the group, I’ll take a moment just to mention again who we are as a division and how we fit into the overall picture. We focus on safety, primarily through the use of our DILIsym platform or drug-induced liver injury prediction software platform. We also focus on evaluating treatment for non-alcoholic fatty liver disease, it’s NAFLD, our NAFLDsym program and also NASH another related liver disease. So, we do both pharmacology, but also safety. Next please. Just a quick review of our fiscal Q2 sales. In terms of our breakdown, we did about 67% of our revenue from DILIsym related consulting projects, about 19% from software licensing, and 14% from NAFLDsym projects. Over time, we expect the NAFLDsym portion of that to grow as we expand that platform. We had 18 active consulting projects related to DILIsym, and we were using the software through all these projects to help companies predict drug induced liver injury or understand issues that they were having in those areas. These projects often involve data management, collection as well as analysis using our software. For NAFLDsym, we had two active consulting projects going, one of which is a very significant development project which will increase the scope and our capabilities with software. And again, NAFLDsym is focused on helping companies evaluate targets and the effectiveness of potential drugs for those targets. Finally, in terms of licensing, our DILIsym platform, we have non-active consortium members who are licensing the software. That’s the vehicle through which we make it available for companies to…

So, just to summarize, the next slide, please. Second quarter, again outstanding numbers. Revenues up almost 29%, income from operations 35%. Neither of those are affected by the tax rates but the net income certainly is with the $2.3 million, 190 plus percent including the deferred tax, but even still around 44%, even without deferred tax benefit. From the six months, revenues up almost 30%, income from operations 34% and net income just over 100% with the deferred tax. Diluted earnings per share increased to $0.29 per share for the six months, up $0.14 and about $0.08 of that is from the deferred tax benefit. So, $0.06 was due to just normal operations, which includes DILIsym acquisition. So, very nice comparison for the quarter and six months. All three divisions performing well, California, Buffalo, and North Carolina. We are realized the synergies. We’ve gotten now a nice intermediate connection between GastroPlus and the DILIsym software. The DILIsym software needs he output of PBPK Simulations, which GastroPlus provides as inputs to the DILIsym. And so, we’ve now made that much more convenient. With integration, we’ll continue to be improved as refactor GastroPlus and reprogram the DILIsym software, C++. There are new guidance documents issued by the FDA and EMA. The new Commissioner o the FDA, Scott Gottlieb is a very strong proponent of modeling simulation. And we think that that may be one of the reasons our consultant work is going up so quickly. Many companies don’t have the expertise to run these very sophisticated software programs in-house, and so they contract for that work and we’re benefitting from that. As we do that for them, they learn. So very often what we’ve seen over 20 plus years is that our consulting customers eventually become software customers. And so, they finally get to the point where they realize they would actually save money by licensing the software and hiring someone internally to run it with our support of course. And for us that means a higher margin sale. The software margins are very high compared to -- that gives our consulting team the opportunity to go and work with new potential customers. So, we definitely believe that Simulations Plus continues to lead the trend towards the more use of modeling, simulation and pharmaceutical, food products, cosmetics and general chemistry industry in research and development. With that, we’ll open it up for questions. Renee, are you going to moderate the questions?

This is Cameron. I’ll be reading to the questions. We’ll start up with some questions from Howard Halpern. [Ph] What do you believe consulting services for the industry seem to be doing? What is your pipeline of consulting revenue within each division?

Okay. Well, I comment on that -- I just did actually briefly. I think several reasons. Software is one of the, if not the highest productivity tool out there. What you can do something with the software that either replaces an in vitro experiment, an animal experiment or a clinical trial, you save tremendous amounts of time and money, but that doesn’t happen every day. But very often what it also does is guide you to choose which experiment you’re going to run and in what order. And so, as is commonly known, most molecules fail to become drugs. The winner is a needle in the haystack almost out of all the molecules that are examined every year. And we have the ability now to examine millions and millions of molecules a year, at least with software, very few of them will ever make it all the way through the cycle to become drugs. So that if you could eliminate any of those in software without even having to make the molecule, you save the tremendous amount of time and money. And I was like to say, the drug that fails out there in the Phase 3 clinical trial, was bad 15 years before when the chemist first drew it. They just didn’t know it. So more that we can eliminate upfront, the fewer those failures that we can experience in very expensive clinical trials, a better it is. So, I think that’s why, the consulting services [indiscernible] as I say because these are sophisticated programs that require quite a bit of expertise to use properly. And I think the industry has not been able to get employees who are tackled [ph] with these tools as rapidly as they have need to see the results. Pipeline of consulting revenue, I’m not able to answer that. Maybe John K, could you answer for Lancaster?

I think John -- from my understanding, John’s just gone and there has been a back -- sort of back-loaded -- sorry, back-loaded section just opened up when we hired more employees back and we’re filling in stuff that’s been out there, pent up demand for some of our services out there. We’re now going after the business that was out there.

Okay. Thanks. I think Ted, you do the most consulting at Cognigen. Do you want to address that one?

The way that I’d like to answer that is simply say that we keep track of the outstanding proposals as we send them out. And of course, we keep records of which ones we’re successful with and which ones we aren’t and why. But right now, we have 41 outstanding proposals with 28 different companies. So for us that represents a really robust pipeline in terms of incoming projects.

And Ted, this is Cameron. One follow-up question, I guess on the Cognigen side. Within the industry, how is KIWI viewed and how solid is the growth pipeline in that segment of your business?

Yes. So, we’ve been continuing to add functionality that we believe will make the platform more attractive to a variety of different types of users. We’ve been experimenting with different groups from different environments. And everyone has very positive things to say about the software and the way that it’s been design and intended to be used. One of the great things about the project that we’re working on for the Gates Foundation is that we’re actually getting to use it into developing of some specific projects, specific drugs. And so, not only are we able to test out different functionality but we are also able to show how that can serve as a prototype for its use in a variety of different environments and different sectors of the industry. So, we continue to be at a place where we are developing and testing new functionalities continuing to demonstrate software at different scientific meetings and doing what we can to encourage people to share our vision for the platform.

Great. Next question has to do on the Lancaster side is, where does your current penetration of the commercial customer stand and how do you anticipate future growth within the software sales?

Commercial customers…

Large blue chip customers or even the pharmaceutical companies for the software sales.

Yes. Most of our customers are commercial customers. Our best guesstimate sometime ago was based on the FDA registry of about 2,500 companies, and we probably are in the order of 10% to 15% of that number of companies. The fact that we keep adding at a pretty aggressive rate new customers every quarter I think is an indication of the increasing sophistication in the industry for one thing to learn, to use simulation and modeling where 20 years ago or 21 years ago when we started, determined, some of them didn’t even exist in the computer as opposed to in vitro, in the lab or in vivo. So, I think the trend is going to continue, I feel quite optimistic about it. But, again, as my attorney would say, there could be no assurances, but 10 or 15 years ago, we wondered where will this begin to plateau, and it just hasn’t happened yet. So, I think as we continue to expand the capabilities of the software, the knowledge base, the underlying science keeps growing. We learn more and more for example about how to model different populations going from premature babies more and upto 16 weeks premature; we couldn’t do that 10 years ago, now we do it routinely. Looking at Asian populations and other populations, how you change, what happens in the intestinal track for different populations, different ages and genders and ethnic groups. So, all of these things are built on a knowledge base that continues to grow. And as we understand more about enzymes and transporter proteins that affect many drugs, the better we can model those. I don’t see this ending any time soon. It’s just going to continue to grow.

Okay. One quick follow-up on that. As far as the current I guess penetration with our existing customers of the top pharma companies and with the India growth we showed on the slide, is that from I guess stemming all from the new contract we established there last year?

John DiBella would have to answer that but it makes sense to me the fact that we do have a distributor in India now that is promoting the product and we’ve had our scientists go to India to do workshops and training. That certainly -- that market, Asia, in general India, China, Korea, some of the other countries in that region certainly have come on where probably five or six years ago we hardly had a customer in those countries.

Okay. Next question, how are the synergistic opportunities between DILIsym and the two other divisions progressing?

Well, I mentioned part of that. The DILIsym software needs the outputs for population simulations from physiologically based pharmacokinetics, PBPK software, and that’s where GastroPlus does so well. And these simulations can be pretty complicated. And what we have done as an initial integration of the two is to provide an output file from GastroPlus that can be loaded directly into those without having to do a lot of hand manipulation reorganize things and get them into a format that DILIsym could input. So, that part is done; it’s working. We still have to run each program separately. What we would like to do eventually is to be able to fire up the DILIsym software from within GastroPlus and have all of the information that’s needed just pass through memory, so that you don’t have to do anything other than start program and set up the parameters you want to run the simulation. So, that has progressed well. I heard Ted mentioned a proposal with Cognigen and DILIsym working together. I don’t know the technical details of that one. But, we’ve been working now with DILIsym for three quarters, fourth quarter of last year and the first two of this year. A lot of work has been done; a lot of nice things are working already. And I just need to put the integration continuing to improve as we go forward.

Great. Next question would be for Ted and Brett. Could the presidents of both Cognigen and DILIsym discuss the scalability of their business on a high level basis? Top-line growth…

Yes. I can start, Ted. This is Brett for DILIsym. Certainly, be happy to discuss in a general sense. We have two different lines of revenue that’s discussed clearly today. One is our consulting side and one is our licensing side for the DILIsym platform and our potential future products. So, as you might imagine, on the licensing side, the scalability is very high. And really the only limitation there is acquiring these customers. We can make that software available and sell those licenses as customers want to use them. Our software is a little bit specialized. And so, we do often times use it for customers through consulting. And on the consulting side, we’ve we do have the barrier of leading to add additional trained scientists who can use the software internally for consulting. So, that’s always going to be a concern with any consulting activities is that with any companies that you need to scale that by adding trained individuals to use it. However, we’ve been working hard at getting in place over the last few years processes and procedures and report formats and styles and presentation, milestones goals, styles et cetera to really facilitate the use of employees with the software and doing these consulting projects. So, I actually feel quite positive about our ability to scale as our consulting demand continues to grow. We have on the order 14 to 15 proposals currently outstanding for consulting, both in terms of model use and also model construction and mutual development. And all total, that’s well over $5 million of new proposals. Again, those are over a long period of time or certain different periods of time and at various places in the proposal processes. So, not saying that all of that is eminent, but that’s certainly our pipeline currently. So I think, fell positive about our ability to scale both on the consulting side and certainly on the software side. Ted?

Thanks, Brett. Yes. So, the nature of the business at Cognigen is primarily consulting revenue. And there over the years we’ve spent a lot of time and effort in streamlining our processes and getting them down, so that we deliver a consistently high quality product in a timely way. So, I feel really very good about all of that work that has been done. And we’re leveraging that now as our consulting pipeline continues fill up. But as you imagine, our consulting business can only scale so far. So, as you continue to bring in projects, we have to continue to bring in new scientists. And we’ve been successful at both of those requirements and are feeling really good about the consulting side. The KIWI platform is the opportunity to really scale up in a rather large way. And that is still in the process of being developed and flushed out. So, I don’t know what to say about that particular part of it. But I feel really good about having created a system for the consulting that is as sufficient as it could be.

Great. Two quick questions for John. What do you expect your effective tax rate to be for all of fiscal 2018 and 2019? I know you have touched on that already. And the second question, will there be any material impact from the new revenue recognition accounting rule 606?

Okay. I’ll handle. The 2018, I’m expecting it to be somewhere in the low-20s. I mean, it’s little, like I said earlier in the call, little hard to estimate some of the effects of the permanent differences and what’s going to hit during that time period. But clearly, the rates are lower. I don’t have any concerns that it’s going to affect us this year substantially, but I just can’t -- I can’t really quite get there in all the estimates I have to do, because there are some moving parts there. But it should be in the low-20s somewhere. And 2019 should be a few points lower than 2018, again all for the same reasons. And the second question was related to 606. All indications are that there will be some effect, not sure how big it’s going to be, I’m not seeing a lot of effect based on the analysis that’s being done right now. So, I’ll know more at the next call that we have, we should be done with most of the analysis by that time. But not really seeing any real big hits based on the way we sell our software here. On an annual renewal model, there really doesn’t seem to be anything there. And we’re on a percentage completion on our consulting revenues and that really isn’t concerning a lot at this point.

Right. We two more questions, one is a follow-up. You mentioned that there was some pent up demand that you’re able to take advantage of by hiring talent. Any sense of where that pent up demand level is at now?

I don’t want to finish that question much farther than. And I was answering for John, who’s not on the call. He would be at better sense of answering that. I just felt that we’re able to really flex up really quickly once we have the personnel in place at this point and we’re just seeing some really good results of that at this point here in Lancaster?

And the final question, any indication as the launch of Version 2.0 of PKPlus and how those sales have started to ramp up?

Again, John DiBella will be the person to answer that in detail. It’s only been up here for, what, eight or 10 weeks in the sales cycle, for software it tends to run probably on average three to six months, sometimes longer. And for a product like this where there is a competitive product already out there that people license typically on an annual license and sometimes on a three-year license, it may be that we have to wait for those annual licenses to expire, which is probably happening every month somewhere before we might be able to get some market share away from the competitive product. So, I don’t have a good solid answer for you on that. And John DiBella would be the one that would know the details how many companies are actually evaluating right now, what sort of feedback they gave.

That does conclude the questions that have been submitted. Walt, you wanted to say quick closing remarks, and then I will finalize the conclusion of the conference call.

Yes. I think, you know that Company continues to grow. We are always shopping. John showed you our cash with the outlays that we’ve had, I think somewhere on the order of $13 million in acquisition costs and the buyout of the TSRL agreement, altogether and another -- I don’t know, it’s almost a similar amount in dividends that we paid out since we started paying a dividend. Yet our cash still seems to stay right in that same range and we saw the growth in the last three data points there where we saw nice upwards growth in all. We will have some cash going out as we pay back the earnout portion of the DILIsym acquisition. But, we are generating cash at a healthier rate. And I see a bright future so far, I see no reason to think otherwise.

Great. Thank you everyone for joining the call. One final note, the management will be presenting at several upcoming investor conferences, the Needham Emerging Technology Conference on May 15th and 16th in New York City as well as the LD Micro Invitational on June 5th and that is in LA. This concludes today’s conference call and webinar. If you missed any part of today’s call, the replay will be available at our website, simulations-plus.com. Thank you for joining us today.