Good afternoon, everyone. On behalf of Simulations Plus, I welcome you to our Second Quarter Fiscal Year 2020 Financial Results Conference Call and Webinar. Hosting the call today is Simulations Plus’ CEO, Shawn O’Connor; and the company’s CFO, John Kneisel. Our quarterly earnings release should be available momentarily and expect to have this before we get into the main details of the earnings call today. An opportunity to ask questions will follow today’s presentation. You may send your written question using the question 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 a unique audio PIN displayed when you join the call. Before beginning, I’d like to remind everyone that 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 can cause or contribute to such differences include, but are not limited to, continued 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 the 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. With that said, I’d like to turn the call over to CEO, Shawn O’Connor. Shawn? Shawn O’Connor: Thank you, Cameron. This was certainly an eventful and historical quarter for Simulations Plus and for all of us. I’d like to start the call by expressing my hope that…

Thanks a lot, Shawn. Looking at the quarter here. First, our consolidated net revenues for the second quarter of our fiscal year 2020 were up 22%, or $1.9 million to $10.3 million, compared to $8.5 million in the prior year. Total gross profit increased 23% to $7.7 million, representing a 74.2% gross margin in the second quarter of this fiscal year, compared to a 73.9% margin in the same quarter last year. SG&A expenses were $4.1 million, or 40% of revenue in the second quarter of this year, an increase of approximately $1.3 million, or 46%, compared to $2.8 million, or 33% of revenue in the second quarter of 2019. The increase in SG&A expenses was primarily the result of increases in salaries, wages, labor and stock compensation costs, as the company has grown in headcount to support our revenue growth. We have also seen increases in selling expenses, commissions and advertising, some contract labor also. In addition, this quarter, we incurred about $300,000 of M&A-related due diligence costs associated with the Lixoft acquisition. Without these transactions-related cost, the SG&A would have been approximately 37% of revenue. SG&A expense in the third quarter will be – also be impacted by transaction costs associated with the Lixoft acquisition. Research and development costs for the most recent fiscal quarter were approximately $1.4 million. Of this total, $748,000 was expensed and $620,000 was capitalized. Income from operations for the second quarter of the year was $2.8 million, up approximately $96,000, or 3.5%, compared to $2.7 million in the year ago quarter. Our provision for income taxes in the second quarter of fiscal year 2020 was about $686,000, an effective rate of 24.2%, compared to an effective rate of 22.1% in the prior year. We expect our tax rate to be in the 23%…

Thank you. [Operator Instructions] At this time, I will – as we wait and poll for questions, go through some of the early written questions that are – have been submitted. Actually, we are going to take the questions first from Matt Hewitt with Craig-Hallum. Please wait one second. Matt, you’re live. You’re now live, Matt.

Good afternoon, and thank you for taking the questions, and thank you for providing some details on the coronavirus. Maybe just to dig in on that a little bit more and I realize that this is an ever-evolving situation, but as you’re talking to your clients and you’re seeing news that some of them are maybe pushing out some of their trial starts or continuations of trials, what is the feedback that you’re getting from them? Are they waiting for 30 days and then they’re going to get back to you? Are they saying, you know what, we’re just going to push the trial start date from maybe instead of May 1, we’re going to push it to June 1. Just any incremental color on what you’re hearing from the clients would be helpful? Shawn O’Connor: Yes, Matt, I appreciate the question. And obviously, everyone in most all regards is looking for that date certain that the trend turns downward that certainty or visibility to return to normalcy will take place. And unfortunately, no one has that crystal ball. And so, discussions with clients, they’re influx. They’re evaluating, they’re reallocating resources. You see the focus on COVID-related development opportunities that are being pursued. There’s a lot of movement in that direction. Existing plans where other therapeutic areas and developments are being held to, but being cautious right now, they are not pointing to – we’re going to defer this from April 1 start to June 1 start, is we’re going to defer it from our plans at April 1 start without a date identified going forward. I think we’re all operating in an environment in which we’d be able to plan better if we knew when the curve bends downward and that uncertainty just keeps us all in a wait-and-see mode. And I think that’s the characteristic of the term that we get from clients. It’s a little bit wait-and-see how things evolve here over the coming days, weeks, and hopefully not too many months.

Understood. Thank you. And then regarding the Lixoft acquisition, congratulations, looks like a great fit, and you even touched on some of the potentially cross-selling opportunities. How quickly – especially given the current environment, how quickly do you anticipate being able to integrate that business and see some of the benefits from the cross-selling? Shawn O’Connor: I mean, we’re getting started. These things do take some time, but we’ve been planning in anticipation of the announcement that we’ve made last week, and so that number of efforts, plans, engagement points between the new organization and are starting to take hold in the coming months, I think the plans both in terms of sales and marketing as well as product development will begin to take shape. I think that there are areas where there is a population of consulting opportunities that are out there, all subject to the same COVID issues that we’ve addressed already here, but I think in that regard, there’s a flow of business that was waiting for someone to catch it. And now with our consulting resources, we should be able to pick up the ball there relatively quickly. So, I think things will move very quickly in this regard. It’s a product space that isn’t – is adjacent to us, familiar to us. Our clients are the same. And so, our ability to consolidate sales and marketing efforts should go very smoothly and very quickly.

Okay. And then maybe one last one for me, and I’ll hop back in the queue. Regarding the new regulatory strategies team, maybe a little more color there as far as how should we be thinking about the size of those contracts, the duration, how – what is that pipeline looking like? I realize it’s early days, but is there a pipeline that’s building and when do you anticipate signing the first contract? Thank you. Shawn O’Connor: Sure. It’s exciting. Sandra has been on Board, maybe a month now, and we’ve reached out into the marketplace and we’ve got, A, we got immediate positive response. She is well-known, well-regarded in the pharma community and got a lot of accolades back from the marketplace in terms of great to hear that she has joined the organization, a lot of excitement around that. Yes, it’s – very quickly, it generated a number of leads that we are managing through right now. The types of projects, and I guess I’d describe sort of two scenarios: one, opportunities that are regulatory advisory projects in and of themselves, meaning, that’s the point of the project and the service. And then secondly, in the breadth of consulting offerings, the projects that we do, including in those projects, some allotment of time and use of Sandra’s advice in effecting other projects, our mainstream projects, if you will, to get that regulatory advice and color and expertise that Sandra brings to the table. So, she will fit into or drive the standalone new projects as well as contribute and add to the flow of existing consulting projects that we perform.

Great. Thank you very much. Shawn O’Connor: Sure.

Thank you. At this time, we will walk through some of the written questions. The first question has come from Howard Halpern. You stated the acquisition of Lixoft will add approximately $3.5 million to the revenues. Given the continued lockdown in Europe, is that still attainable, and how does the margin profile – and over time, what is the plan to integrate it into the general consulting services? Shawn O’Connor: With regard to the first point in terms of revenue expectations, what we disclosed was that they closed the calendar year 2019 with $3.4 million in revenue. That means that they entered the calendar year of 2020 with $3.4 million of software revenues, software licenses that given their high renewal rates, they traditionally enjoy that the vast majority 90-plus percent of the $3.4 million should renew and recur into the calendar year 2020 with our fiscal year of August year-end, we get in terms of mismatches in terms of the timeframe, so I understand. But the point is that their base business, which is recurring revenue is at $3.5 million level. And so expectations are pretty high that we should be able to continue that into our fiscal year 2021. It’s not highly dependent upon new software licensing. So, we certainly expect that not to be zero during this timeframe. So on the margin side there, gross margin, operating income, EBITDA percentages on a standalone basis over the prior two years, all exceeded – were at or exceeded our percentages in those regards of revenue in terms of their model performance. So, they should add to and might, in a small way, improve our percentage results in terms of EBITDA percentage of revenue operating income. And the last step was with regard to consulting, how quick that would come on Board. There’s sales cycles that are involved there. We know we’ve got leads – can get leased pretty quickly. But now, we’re in that environment of COVID-19, so hard to say in terms of the speed of that sales cycle closure.

Thank you, Shawn. The next follow-up question from Howard is, have you increased the use of webinars, virtual conferences to offset the some 20-plus conferences and presentations you attend in a given year? And do you expect any impact on your future customers in obtaining them? Shawn O’Connor: Yes. We certainly gone virtual as many have on the business world, virtual in the sense of our webinars, our training, workshops, each of the divisions has moved, planned events into that format. And so we utilize that significantly. We’ve translated face-to-face sales meetings with virtual meetings. So we’re keeping the pace of the activity going. No doubt, there is some slowness that creeps in as – into the process, as we’ve talked about. But yes, we’re leveraging the virtual world as best as we can.

And with this one additional question from Howard is, has the pipeline of consulting services across all subsidiaries changed due to the current environment? Shawn O’Connor: Yes. I’ve – as I’ve said, it’s – the pipeline has actually grown as we’ve had a slower pace on the closure into the sales cycle, the amount of the business that we are working in our pipeline has grown. Certainly, some of the opportunities have fallen off. But the additions to the pipeline have far exceeded the fallout there. And that is true across all three businesses. There still is some Cognigen and the consulting work we do…

Thank you, Shawn. And we’re going back to a live question, a follow-up question from Matt Hewitt of Craig-Hallum. Matt, your line is live.

Maybe I guess just one last one here. As you look at the sales force, I think, you were up to two. And did Lixoft bring – also bring any sales resources, or is that an area where you still maybe could look to add any heads there? Thank you. Shawn O’Connor: Yes. Lixoft brought a sales organization of Jonathan, the CEO, who was the primary sales front to the organization. Supported the Round number 10 other Lixoft employees split pretty equally between software development personnel and applications personnel, applications personnel being those that support client-facing demonstrations, customer service and support, trainings and workshops, et cetera. So we’ve got an excellent salesperson in Jonathan that’s come on Board. And our needs going forward, not immediate in terms of additions because of the acquisition, the joining of Lixoft and, in fact, it gives us the immediate benefit of having a senior sales-oriented executive like that in the geography. And just as we will be coming up to speed in terms of being able to front the Lixoft products here in the U.S. have them up to speed in terms of being able to front our products in Europe as well in this process.

That’s great. Thank you. Shawn O’Connor: Take care, Matt.

Thank you. We have a few more follow-up written questions. First one coming from [Karl Hofmann] [ph]. And how does the Lixoft software complement or potentially overlap any SLP existing software? Shawn O’Connor: It’s mostly an adjacent product. It’s a product in PKPD modeling world that covers a modeling – it’s a modeling platform, but it allows the scientists to run from data exploration to the building of PK models, to primarily NOME is the type of modeling technique that it has engines for and then runs simulations off of that clinical trial simulations to the adjacent product to our PDPK platform in gastric class. There is some functionality that crosses over, but it’s relatively minimal.

Thank you, Shawn. And one final follow-up question for Howard Halpern. Has there been any material change to your operating expense profile during this current pandemic environment? And excluding the transaction cost, as mentioned, what are the expectations for percentage of sales for the remainder of the year on an operating basis, SG&A costs? Shawn O’Connor: Well, United and Marriott had called me up and asked me where I’ve been over the last eight years [ph]. So I guess there probably is some expense that we’re avoiding in this sort of work style, but –- I’m being a little facetious, I don’t think it’s dramatic, but certainly there is on the travel side. There’s no – we did not incur a tremendous expense related to taking our workforce off-site. Much of it was already in place. Most all employees were set up such that even if they worked in office that they have the capability of working from home on a temporary basis. So there is no great expenditure in terms of cost involved in the transition in that regard. SG&A, excluding the impact of closing of the transaction and expenses that will continue to flow into the third quarter related to it, I think, should continue to move as we have been for the last number of quarters, having stepped up in the lower revenue seasonality quarters above the 35%, you’ll see that the average out with our second and third quarters, which are the higher revenue quarters. And we’ve been looking at keeping it as close as we can on the 35% for the year as a whole. I don’t see anything that’s changed in that regard other than the uncertainties is the top line in terms of our top line growth with COVID impacts.

Thank you, Shawn. It appears there is no further additional questions. With that, I conclude the conference call. Thank you, everyone. This does conclude today’s conference call and webinar. If you’ve missed any part of today’s presentation, the replay will be available on the website, simulations-plus.com. Thank you and have a good weekend. Shawn O’Connor: Thanks, everyone. Be safe.