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…CEO, Shawn O’Connor; and the company's CFO, John Kneisel. An opportunity to ask questions will follow today's presentation. [Operator instructions] 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 an excellent quarter for Simulations Plus, despite challenging economic conditions resulting from the COVID-19 pandemic. Fortunately, the pandemic's impact to our company has been relatively minimal and in the third quarter of fiscal year 2020, we delivered another strong quarter of results. We've stated goal of delivering organic revenue growth of 15% to 20% and we again exceeded that goal with 24% revenue growth and total 18% organic revenue growth. This was our fourth consecutive quarter with total revenue growth in excess of 20%. Our software revenues represented 56% of our total revenue and grew 18% to $6.8 million, while our service revenue represented 44% of total revenue and grew 32% year-over-year to $5.5 million. Notably each of our operating divisions delivered double-digit revenue…

Thank you, Shawn and good afternoon, everyone. As Shawn indicated this was an excellent quarter for Simulations Plus. Our consolidated net revenues for the third quarter of our fiscal year 2020 were up 23.8% or $2.4 million to $12.3 million from just under $10 million the prior year. The third quarter represents the fourth consecutive quarter of revenue growth greater than 20%. On an organic basis which includes the Lixoft act which excludes this, Lixoft acquisition our revenue 18%. Organic revenue remained steady in the high teens despite turned economic conditions triggered by COVID-19. The general sectors we operate in and the software and life science pharmaceutical have tended to maintain momentum in the midst of the pandemic. Consolidated software and software-related sales increased $1.03 million or 17.7% over the prior year quarter. Lixoft software sales accounted for $566,000 or 55% of this increase. Consolidated and analytical study revenues increased $1.33 million or 32.4% over the third quarter of '19. Cost of revenues increased 14.7% or $341,000 resulting from increases in labor-related costs and direct expenses on contracts. We saw a decrease in travel and travel related expenses of $154,000. This training was done online due to travel restrictions. In addition, this quarter we reported a benefit for royalties of $189,000 as the royalty agreement reached a final determination and amounts we had accrued were recognized back in the income. Total gross profit increased 26.5% to $9.6 million representing a 78.3% gross margin in the third quarter of the fiscal year. Historically our highest quarter seasonally compared to a 76.6% gross margin in the same quarter last year. Overall software margins were 90% and consulting margins were 63%. SG&A expenses including the one-time M&A charges associated with the Lixoft acquisition of $1.1 million in the quarter were $5 million or…

[Operator instructions] And our first question comes from Matt Hewitt, the analyst with Craig-Hallum.

I guess first off, could you maybe talk a little bit and you touched on this but I am wondering if you could talk a little bit about the cadence that we know that there was a little bit of slowdown on new customer bookings in the quarter, but how was that cadence changed I guess as the quarter progressed and where do things kind of sit now? Are you seeing a stronger upturn there or is it still some hesitancy? Shawn O’Connor: Well I'll describe it this way, Matt. We went into the quarter with a reduction reducing our expectation in terms of the new licenses, new consulting contracts. We saw that in the last month of our second quarter and went into the third quarter anticipating a relatively slow pace. That slow pace came to reality and during the year our closure of new business was well below what historically we've seen. We did see as we entered the last month of our quarter May, that things picked up a little bit and look at that very optimistically. But I just don’t know that it's something a trend change that we can hang our hat on just yet. And so we're cautiously looking into the fourth quarter that we'll remain impacted by COVID slowdown. As we look at our customers across the board kind of pandemic response in general, I think people started to come back and activities started to pick up and maybe has taken a little a little step back as infection rates etcetera have stepped up. And so I want to be optimistic. We certainly did better that we anticipated on reduced expectations in May the last month of third quarter and I would like to say that that's a positive uptake a positive trend forward but I don’t think it's a big enough data point for ourselves to say that clients have returned in the marketplace for us. We'll remain cautious as we go into the fourth quarter.

And then I guess kind of moving down the income statement, gross margin that was your high watermark going back all the way to Q3 of 2017 how sustainable and I appreciate some of the seasonality, but how sustainable is this gross margin given some of the changes in working from home and kind of the mix adding Lixoft with the higher software margin but how should we think about gross margin? Shawn O’Connor: I don’t see anything too significant has happened in there other than of recent improved margins out of our Cognigen consulting operations, where we've found some efficiencies and started to implement them and they had a very good quarter. Again the third quarter is our highest revenue quarter from a seasonality perspective and so we kind of as we had expenses on more or less a liner basis through the year our peak revenue raised here in the third quarter and as the seasonality dictates, we'll step down in the fourth quarter and you'll see the pattern on an annual basis is pretty consistent with that gross margin will be impacted in the fourth quarter. So that points at year-over-year gross revenue results little bit improved over last year. So we're seeing some improvements there. Obviously, Lixoft coming into the mix adds more software -- high gross margin software to our next steps our overall revenue back to more of a closer 55-45 split between the two sources of revenue and that certainly helps gross margin as well. So little bit improvement on the uptick but as you model, look forward keep in mind that there is seasonality factor in play here.

Got it. All right. maybe one more and then I'll hop back into queue. Given the strong performance that you’ve been putting up and the balance sheet, your profitability, is there -- have you had any discussions internally with the board regarding may be taking on a little bit of risk with some of your customers and what am I guess, I asking is, is there any chance that you could start to look at some of your customers and say, instead of charging you X, we would be interested in essentially partnering with you or we're going to collect milestones and royalties as your pipeline opportunities are successfully? Has that discussion come up and what are your thoughts on that type of a model? Shawn O’Connor: That's a big change in terms of our model today being traditional mix of software and consulting revenues. We're always focused on returning very good profitability metrics on a quarterly basis, change to a royalty milestone betting on the future with an impact that tremendous. So there would be significant change in our approach. We certainly do look at situations where it can be impacted your services and different forms of service offerings that may lead us into areas where we're looking at delivering consulting results for the clients that have from today doesn’t pay off for them until longer road -- longer turn down the road, which might comp royalties into the discussion. We're not close to making any of those sort of changes in our business model at this point in time and feel comfortable that we're able to deliver a good value to our clients at a good return to us and shareholders in our current model today.

And our next question is from Bill [ph]. Kevin, your line is now live.

Hi, good afternoon and congratulations on a strong quarter. I just wanted to bring up the shelf registration. It seems like some of the commentary to discuss the timeliness of being able to become a zero issuer, is it timely in the sense that you are looking to engage more M&A and if you do so, are you looking for use anything other than accumulated cash in your balance sheet. Thank you very much. Shawn O’Connor: Sure. That was simply something shelf registration, it's something that we've looked at for some time and considered to be appropriate for our company and our size, shape and whatnot, achieving the -- we see threshold a month ago put us in a position where the ease of filing that registration statement was facilitated immensely in the review period being a big piece a big piece of it in and out of that difference as well. In terms of it's potential use out into the future, it doesn't change our approach in terms of modeling but we're doing an acquisition activity. It's an ongoing effort on our part. We closed Lixoft a couple of months ago. The third acquisition of the company is May and as I've said before, we've done it on kind of an every three-year basis and hope that that window is shortened and we're able to move, identify and take action on appropriate target candidates on a appropriate pace here. The shelf there being -- there it will allow us some leads and speed in terms of responding depending on the nature of those transactions and the need for shares and/or cash to move on those. We've maintained our cash position already and as we've done with the other acquisitions, funded them out of existing resources, existing capital. If anything, this might give us an opportunity to look at target opportunities that are a little bit larger down the road. Hope that answers your question.

Yeah. That's very helpful and maybe if you can discuss briefly the valuation of some of the targets that you're -- that you're been looking at? Is the opportunity set within your expected range, perhaps some intriguing? And then lastly, you have brought -- you had put out a PR about partnering with COVID research organizations. Has there been any product wins related to COVID-19 either antivirals or vaccines from Simulation Plus? Shawn O’Connor: In terms of the M&A target list and into values run from small to large, large being to find historically as to what we -- we have an appetite to -- that can write-off the three previous transactions, we're all in sort of $20 million and below size. As I said, the target list, if you will, might expand in terms of its valuation size as we go forward. With regard to the COVID efforts out there, yeah, it's been a fast and furious market. We tried to be a good citizen and in many ways contribute some of our knowledge or past experience and model efforts to-date on a graphics basis in some scenarios, counting on the fact that they would translate to commercial opportunities going forward. We've got some small realities in that regard. And we've got a pipeline of discussions and grant proposals and the number of opportunities in process and in pipeline going forward.

Great. Thank you so much.

[Operator Instructions] And while we pull for additional questions, I will go through some of the questions that have been sent in. The first question is from Howard Halpern with Taglich Brothers. His first question is what will drive improvements and potential growth in operating margins over the next 12 months? Shawn O’Connor: Well, obviously, the two biggest impacts on those percentage results, operating expenses and gross margin are; A, our overall revenue growth. And as we get larger, there are certain fixed expenses that don't rise with the revenue growth and we'll see a little bit of improvement there. The other big impact is the mix of our software and consulting revenues. Consulting opportunities, consulting revenue continues to grow at 30% plus ranges and the software in the 15% level. And so we have a continual mix change that takes place. We look to keep that in the favor of software through internal development of products and driving existing portfolio of software products, revenue growth at a faster pace. And then obviously, as with Lixoft, add to the software side of our business through acquisitions going forward.

Thank you, Shawn. Next question from Howard is, over the next 12 months, what are the growth prospects for the European subsidiary? Shawn O’Connor: Lixoft has very consistently grown the last couple of three years at 30% top line growth rate. They've enjoyed a little bit -- the rule of small numbers there as they climb their way to a $3 million to $4 million annual level of revenue. We are pleased with their results in the first couple of months here. We only get a partial quarter. And as they come on board, they are seeing the same impact that our existing software business has encountered as a result of COVID situation. So, their growth rate has to shoot here as are the Simulations Plus family. I would anticipate it may come down from that 30% growth level that they've enjoyed for the last few years. But in the long run, they certainly will grow in the 15% to 20% range that we've been touting here in terms of our ability to grow on an organic basis. They should fit well into that and might be able to contribute at the higher or above side of that depending on how quickly and when and how we come out of the COVID scenario. Their revenues are a 100% software upon acquisition, 99% I guess. There are some small contribution on the service side but that's an upside. And so in terms of looking at Europe and really globally, our ability to take advantage of consulting business that is drawn to or tied to the Monolix Suite application presents an opportunity for contribution in revenues going forward as well. So an exciting addition to the mix here and gotten up to a very good start in the first couple of three months since I've joined the team and look forward to seeing what we can do with it going forward.

Thank you, Shawn. The next question from Howard is on top of the $5 million five-year KIWI contract. Has KIWI in the offering made any inroads as the need for security is increasing during the drug development process? Shawn O’Connor: I'd say, of late, certainly, making big investments in KIWI like data repository decisions impacted probably more significantly than analytical tools like GastroPlus, Monolix. Those are the types of decisions that have them shelved in terms of our clients out there in the marketplace. So I think my response there is no, not seen any uptick in that area of our businesses.

Great. Thank you. The final question from Howard Halpern is for modeling purposes, what is the likely quarterly increase and D&A expense related to Lixoft acquisition? Shawn O’Connor: D&A expense, I presume, is maybe a type of SG&A expense and...

That's Depreciation and... Shawn O’Connor: Yeah. Well, yeah, at the SG&A's level certainly I'll respond, their model fits in right with ours and so our expectation that we're kind of operating on an annualized 35% SG&A level, looks like it will fit right into that relatively small operation and it's consolidation into our numbers, no dramatic change there. It's more cash-oriented in terms of EBITDA percentage. Lixoft is a fine addition and will contribute more significantly and more positively on an EBITDA sort of perspective because their overall margins are even better than our pre-consolidation EBITDA percentages at Sim Plus. So, they will contribute disproportionately in terms of increasing cash flow and EBITDA.

Thank you, Shawn. And we have a few written questions from Brett Tasakiyo [ph] but he is on the line live, so we'll let them ask those questions live first and then follow-up with any of the written questions that he submitted. Brett?

Hello, I'm here.

Your line is live. Great.

Can you hear me? Shawn O’Connor: Yeah, go ahead Brett.

Yes, you're live.

Yeah. Thank you for taking my question. The first question is what is your current marketing/sales approach to distributing your software or other pharma companies, chemical companies, etc? And do you have any plans to expand your proprietary software to the enterprise resource planning space outside of pharma, bio, chemicals or more so manufacturing and other markets? And then the second question is Japan seems like a huge opportunity for you that is prime for penetration growth. What is your sales and marketing approach there to grow revenue? Shawn O’Connor: Sure, Brett. I'll walk through them. Our current sales process is both direct and through distributors. The distributor network is utilized in the Asian markets and the rest of the world is a direct sales effort on our part. Turning to I guess second part of that question is in terms of the expansion outside of the pharma space, not as far reaching as generic ERP spaces, manufacturing. We do impact and can impact certain pharmaceutical manufacturing decisions and activities. But the question is from answer sort of perspective of applying our modeling and service to a wider range of industries, the answer is no. But we'll stay focused in our pharmaceutical space and the adjacencies to it. The Japanese market is yes, one of the larger non-North American markets, Europe and Asia being the two big markets for us outside North America. Japan as I said, we use distributors there for our software products. And on a consulting side, we do some business in Japan. We do a fair percentage of business for Japan through their Japanese representation companies here in North America, their subsidiaries in North America. The opportunity, just at some point in the future, seeing other consulting organizations with [indiscernible] some success when they have consultants on the ground in Japan would contribute I think to a greater capture of market share in that regard. And that's something that we certainly look at in the future but haven't pulled the trigger on doing something of that nature at this time. Hopefully that touches all your questions.

Thank you, Shawn. And then we have one follow-up question from Kevin Gade. I'll unmute his line now. Kevin, you're now live.

Hi. Thanks again for taking my follow-up. My question is just generally if you can kind of speak to the resilience of the software modeling industry within the pharma space and maybe talk about the long-term growth aspect? Just seems like this -- where you are in the drug creation spaces is almost perpetually growing. So just perhaps talk to any puts and takes to what you have seen over the past several months as it looks to the future? Thank you. Shawn O’Connor: Sure. Sure. Yeah. It's an exciting market for me from my perspective of having been involved for 20 years now. Those early days with banging our head on a cement wall at a large pharma company and trying to get that initial adoption initiated, we've come a long way from that point in time. And today, it's certainly accepted and adopted and flourishing in terms of this expanded application, both along the timeline of discovery to approval, and as well as the various means through the -- between those two points in terms of impacting decisions, prioritizing molecules, affecting bioequivalence decisions, impacting FDA response to submissions, the list goes on. And we've been gated over time as well by the available resources that are out there -- number of scientists that have this relatively unique mix of math, statistics, biology chemistry, etc, that are able to drive the software to grow. We stay -- have numerous academic organizations producing candidates that are populating the field and allowing more resources in that regard that is supporting the growth and adoption of modeling and simulation in the pharma space. I look at one of the silver linings of the COVID pandemic here, if we can search for those things is the heightened awareness of, gee it takes too damn long to develop a drug and it seems to be such a painful process, how can we improve it? And that's what modeling and simulation delivers to the industry. So, we're getting some attention. It's well deserved. We can be very impactful in terms of the efficiency and effectiveness of the drug development cycle. And as I look out into the future, I don't see any end to this expansion of application of modeling and simulation in new and different ways that can impact our clients and very excited about the future for modeling and simulation.

Well, thank you, Shawn and this concludes the conference call today. Thank you, everyone. If you've missed any part of today's conference call, the replay will be available on our website, www.simulations-plus.com. Thank you and look forward to the next earnings call to further our dialogue. Thank you.