Simulations Plus Inc (SLP) 2010 Q3 法說會逐字稿

Good morning. It's Friday, July 16, 2010, and on behalf of Simulations Plus, I welcome you to our third-quarter fiscal year 2010 financial results conference call and webinar.

Our Chairman and Chief Executive Officer, Walt Woltosz, will be presenting this morning. Accompanying Walt as panelists are Chief Financial Officer, Momoko Beran, and our Director of Marketing and Sales John DiBella.

A question-and-answer period will follow Walt's presentation. (Operator Instructions). This call is being recorded for playback at our website, www.Simulations-Plus.com.

It's now my pleasure to turn the presentation over to Walt Woltosz, Chairman and CEO of Simulations Plus.

Thank you Renee.

Just a reminder, if you go to our website, there is a hyphen between the word Simulations and Plus. The recording will be posted up there as soon as we have that available.

Let me start by keeping the attorneys happy by reading the Safe Harbor Statement. 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 made 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.

So, we finished the third quarter of our fiscal year 2010 on May 31. This was our 11th consecutive profitable quarter. You can see the split on the right there in revenues between the two businesses still holding at about the same ratio of about 75% on the pharmaceutical side and about 25% on the Words+ subsidiary.

Q3 was another record quarter, not only a record quarter from the third quarter but a record quarter overall. Sales were up just under 15% to 14.9% to $3.12 million from $2.71 million last year, and earnings were up 30% for the quarter. The high margins we have in the pharmaceutical software side mean that a certain increase in revenues percentage-wise results in a significantly larger increase in earnings once we get past breakeven.

Third-quarter sales up over the previous quarter, just under 6%, 5.7%, versus $2.95 million in the second quarter, which was a record quarter before that, the second quarter.

Pharmaceutical software and services sales increased 17.1% and recurring revenue from the pharmaceutical software was about $1.94 million out of a total of $2.32 million in that quarter. Someone is going to ask how much of that is due to price increases. Around $120,000 was due to price increases.

The nine months is also a record. For the nine months of fiscal year '10, our sales were up 16.5% to a record $8.5 million from $7.3 million last year for the same time period. Earnings were up 51.1% for the nine months, again the high margins that we have in the software business.

Pharmaceutical software and services sales increased 21% for the nine months over the nine months of last year.

Our balance sheet remains strong -- $8.6 million in cash at the end of May. That is in spite of cash used for shareware purchases during the first nine months approaching $1 million -- $882,000 used for share repurchases.

We have two phases of share repurchases, the Phase I that was primarily last year ended during this fiscal year in December and we spent $289,000 finishing up the repurchase from Phase I. And then the new Phase II that we're calling it that began this February, we spent so far $593,000 buying back shares.

Shareholders equity now $12.8 million, up again, and no debt.

Consolidated revenue you can see on the chart here. The typical pattern that we expect to see where the stairstep affect -- we began in the first quarter, you can see last year $2.1 million, this year $2.4 million. Second quarter $2.5 million last year and $3 million this year, and third quarter '09 was $2.7 million, this year $3.1 million. Then fourth quarter, which is the summertime, June, July, August, drops down. We expect that is going to happen again. We don't think it's going to drop as far as it did last year, but we will not know until the quarter is over at the end of August.

Revenue history -- you can see that year-to-date there on the right is nine months. We have already equaled all of last year in terms of the pharmaceutical sales. A little bit -- I'm sorry, the Words+ revenues reflect the nine month difference compared to $2.8 million last year, the full 12 months $2.2 million so far this year. Our expectation is that we will beat last year's revenues by the end of the quarter. Again, no guarantee but that is our expectation.

This is the split of the revenues just on the Pharmaceutical side. Again, you can see the pattern there, and again the third quarter being the best quarter ever in the Pharmaceutical side. I think that's important because, in spite of the consolidations that have taken place in the industry, the overall global economy, you have undoubtedly read if you follow the pharmaceutical industry of the various plant closures, staff cuts, even in R&D that have been announced, and yet we continue to do well. I believe myself that it's because what we really sell is productivity and the tighter things get, the more productivity the companies need and we do provide that.

This is the operating income. We did spend considerably more this year on travel and trade show expenses in the third quarter, quite a busy quarter but that's how we generate sales, and so the SG&A was a bit higher this year. So you can see the operating income down just a tad from what it was last year for the -- I'm sorry, what it was last quarter. It's up over last year, last year being around $800,000, and this year over $1 million, so around a 25% increase in operating income in spite of the heavy investment in marketing and sales.

Gross margins continue to run in the 70% to 80% typically quarter-over-quarter, and income before taxes you can see again the same, similar trend. Now, this is consolidated; this is not just the Pharmaceutical side.

Then net income -- I think one of the important things here if you look at the second quarter and you see February '10 there on the right, the second last bar on the right, you see that a large negative value from Words+, and you see that is not there for this quarter. There was a very slight negative value for this quarter of about $1000 as I recall. So, we're getting past the Accounts Receivable issue that we had with Words+. We have made a fairly heavy investment there also in travel and shows, introducing the new EyePro Eyegaze system that was brought out at the end of the third quarter.

So, Eyegaze is a technology that allows a disabled person to look at a computer screen and the system basically using a camera, knows where they are looking at so they can make selections from the screen simply by looking at the screen. It was a technology that started to come on strong about maybe three or four years ago. We were not in the play on that. We had some attempts to get into that via acquisition that did not work out. We could not arrange a suitable OEM arrangement for those folks that were manufacturing those until just a couple of months ago when we now do have a suitable OEM arrangement, and we are now producing and selling the EyePro system from Words+.

So we are in the Eyegaze business. It was something that hurt the business. It kept us very flat over the years, the last three or four years, in terms of revenues because we had nothing to compete in that arena. We now do have a product and from the looks of it, it's going to be a very positive contributor to the Words+ top and bottom line.

Consolidated income statement, I won't read all of these to you. I think the important thing comes down to the bottom line. The net income is certainly up considerably. Earnings per share last year at the end of nine months, we had 40.07. This year we are at $0.11, so a very substantial increase in earnings per share. We expect that to continue.

Our balance sheet -- again, in spite of spending quite a bit of money on share repurchases, we continue to put money in the bank. Cash and cash equivalents you can see are up. Shareholders equity continues to increase at a very nice, steady pace.

I mentioned the share repurchase. Again, we've had two phases of share repurchase. The one last year that we're calling Phase I authorized up to $2.5 million of repurchases at that time. We did repurchase over 1 million shares at an average price of I believe it was around $1.30 a share. A second repurchase was authorized this year in February at the annual meeting and board meeting, and we have begun to repurchase under that second program. As of today, we have repurchased about 257,000 shares at an average price of $2.31. And so you can see there's about 0.75 million shares left to be repurchased. We do intend to continue repurchasing subject to the very many constraints that we have on how many shares we can buy and when we can buy them. But we will continue to repurchase. The Company doesn't announce when and what price and so on. We kind of keep our ear tuned to the market and look for good buying opportunities.

Our goal in the repurchase is not to support a stock price. Rather, it is to buy back as many shares as possible. We believe, in the long-run, that is for those shareholders who stay in and hold the stock because we're going to reduce the dilution by reducing the number of outstanding shares.

We announced earlier that we have become very aggressive in our marketing and sales program on the pharmaceutical side, attending many, many more scientific meetings and conferences around the world. We are very active in presenting scientific posters and getting invitations for speaking slots at these meetings. I believe that this is one of the reasons we're doing well, is that we are putting a little bit more into the shows and the customer contact, generating the leads.

I also believe quite strongly that there is this fundamental industry shift that I mentioned in the last conference call that has taken the pharmaceutical industry about 30 years to recognize what was done that many years ago in aerospace and automotive and electronics, for example, where simulation modeling tools are not a sidelight. They are the design tools; they are how things get designed in those other industries.

Certainly, the pharmaceutical industry is a bit different because we have the complication of having biology involved. Those other industries only have to deal with physics and chemistry, not really biology. Biology does make it more difficult to use these tools. However, these tools have evolved over the last 10 to 15 years to a point where they are very productive tools.

We recently had a presentation by a Pfizer scientist at one of the major meetings who mentioned that using GastroPlus, they had run some simulations showing the effect -- I believe it was a food affect -- expectation of food affect -- for new formulation, which normally would've required a separate food affect clinical trial in humans. Through the simulations, the FDA, who of course also has many copies of GastroPlus, agreed that the simulation showed that the new formulation would not have a significant food affect, if I'm recalling the content of that paper correctly. At any rate, Pfizer was able to avoid having to run another clinical trial. That's huge. You know, if you can avoid a clinical trial -- even a small clinical trial is months of work, lots of money, lots of staff time to deal with that. So the cost of that one clinical trial probably paid for all of their software for some -- quite some period of time, perhaps several years even across a large company like Pfizer.

Our consulting services continue to grow. It's quite interesting that the majority or at least a substantial part of our consulting is with the top five pharmaceutical companies in the world. These are folks who have used the software for ten years or so who have expert users. But we do have an expertise that is quite unique. Because we get to see a lot of really complicated problems, we get exposed to more. This is something that we do every day as opposed to someone in a large pharma may only get to use the software on an occasion every few months or something like that. So we do have expertise that has been recognized and the repeat consulting contracts that we get from large pharma are evidence to the respect that we get from the top scientists in the industry and the quality of the staff and their skills that we have here at Simulations Plus.

We are on the verge of releasing three very big releases. These are all coordinated now, GastroPlus and MedChem Studio, which used to be called ClassPharmer. Both integrate with ADMET Predictor. So when we upgrade ADMET Predictor as we are doing, we need to coordinate what it's doing with the other two programs. So, you will see a shotgun of announcements coming out here shortly in the next coming weeks where, as we finish each one of these, we will make the announcement that it has been released. GastroPlus of course being our flagship product generates probably half or more of the revenues on the pharmaceutical side presently.

Version 7.0 is a really major upgrade. It has dragged on a bit but it is a fantastic new capability that includes three new capabilities that will expand our markets there. The drug-drug interaction, which was funded by Roche, the ocular drug delivery which was funded by Pfizer, and the nasal pulmonary drug delivery capability that was funded by GlaxoSmithKline. So all three of these significant new enhancements were funded by top five pharma companies and evaluated and tested and actually currently in use at those companies. They got pre-released versions so that they could be using them before we got the public release out.

So it's been a really nice arrangement. We've had tremendous cooperation from that scientists at these companies, access to their data to validate what is going on in these new modules. Particularly for drug-drug interaction, this is an important capability that we haven't had that our one significant competitor company out of England (inaudible) has had for several years. We believe the capability that we have now put into that is every bit as good and probably better in several ways, and should be a significant factor in the licenses for GastroPlus in the very near future.

ADMET Predictor, again Version 5.0 is another major upgrade. This has been a year or more of work since the last major release. A lot of the improvements may have come under an SBIR grant, small-business innovation research grant, that we have from the National Institutes of Health. That's over $0.5 million for the current Phase II. This has allowed us to generate some new descriptors, molecular descriptors, that are used in building the model. With those new descriptors, a number of changes to the interface to allow better visualization, better information transfer to the user. We have retrained all of the models using these new descriptors, and we see improved predictions across the board. We are adding a number of new models that we didn't have before in the area of toxicity. So this is a very important release for us.

ADMET Predictor remains the top rated prediction programs in the world based on independent comparison studies programs that do this type of thing, which is to take molecular structures and predict the properties of those structures, even though the structures may never have existed. So a chemist can draw a molecule that's never been made before and have a pretty good idea of quite a number of properties. I think we have over 90 predictions now of various types in ADMET Predictor.

MedChem Studio is a very exciting new release. This has evolved from the program that was called ClassPharmer. ClassPharmer was an acquisition we made about five years ago; it was the fall of 2005. We acquired ClassPharmer and ChemTK. David Miller, the architect of ChemTK and in fact the instigator of ClassPharmer at his former company called Bioreason joined us and has been leading the development of this effort for the last five years.

The evolution from ClassPharmer to MedChem Studio is a result of the program becoming rather than the original purpose of classifying molecules into groups of molecules that have similar structures. It's evolved to be far more than that in terms of both data mining capabilities and in the capabilities to design new molecules. So, this is becoming quite a powerful design program. Coupled with ADMET Predictor, we believe, it has the most powerful what we call de novo design or new molecule design capability that is available today.

DDDPlus, the fourth product, this has been a stable product. We have licenses at the FDA, in fact a number of them. I think we just added about ten more in a number of companies now. It's been a little bit of an evangelistic process you might say in that we were -- we developed a program that no one else has ever developed. There is no competition for DDDPlus; no one else has tried to make this type of program. We did it because we thought it was a good idea.

The purpose of DDDPlus, if you are not familiar with it, is to stimulate the solution experiments in the lab. So the typical dissolution experiment that you might see is a glass container that holds a little under 1 L of fluid. The fluid can be any one of many, many, many different recipes of buffer solutions at different pHs and different ingredients in the buffer. Typically, the experiment that you offer often see the picture of is one that has a pedal that is rotating not too fast; it's turning fluid, agitating the fluid at maybe 50 RPM or 100 RPM, somewhere in there. You measure the rate at which the tablets dissolve and so formulation scientists who have to take the actual drug substance and combine it with a variety of other ingredients that serve various purposes, sometimes it's something that gives the tablets some strength so it won't break apart in shipment, sometimes things that are not there for the tablet but is there for the machinery such as an ingredient called the glidant which allows the powder to flow smoothly through the hopper as it flows down into the tablet presses. There are even lubricants in the powder so that the machine stays lubricated. Well, we don't need to lubricant in our medicine but machines need it in order to make the medicines.

All of those things combined and how much compression force you use on the tablet and the shape of the tablet can all affect how rapidly it dissolves. So having a simulation capability means that a formulation scientist can now experiment with changing some of these formulation parameters, the amount of different ingredients, the compression force and so on, particle size of the actual drug and then test that in the simulation rather than having to pound out tablets and go measure it in the lab over and over and over again until they get it right. So, the capability here is designed to reduce the number of iterations that are required to finally home in on the formulation you are looking for.

So that's the end of the slides. The slides will be available. We will now go to the question-and-answer and portion of the conference call. Remind you again that, if you have questions, you can post them online or you can ask them verbally. In order to avoid one person dominating the time --we had a couple of people that were a little concerned that not everyone was getting equal time -- we're going to limit to two questions at least through the first round and no more than five minutes per person. If we finish everybody and have some time left -- we scheduled an hour for this -- then we will come back around and give you another chance. So I think, Renee, are you going to look for the questions or am I going to do that?

I am looking for the questions. I don't see as yet that any questions have been sent. I'm looking for a hand raised. If anybody wanted to pose a question, you could unmute your line.

Howard is always first. Where's Howard?

There he is.

Okay, I'm looking here. Am I supposed to do something?

I sent him an audio PIN so he can join the call.

While looking for Howard to join the call, I'm looking for any other hand-raising icons. I don't see any. Let's see if there have been any questions sent. Mr. (inaudible) out there. Howard just put his hand down.

No, his hand is back up on mine.

Yes.

I clicked on "send an audio PIN".

Yes.

I know Howard has a question, so we will be a little patient here and see if we can get the technology to work. Howard, you are going to have to enter your audio PIN.

There is a question. What was the foreign currency effect on Q3 revenues and operating income from Mr. Ramsley.

Okay, Walter Ramsley -- Momo, do you want to answer that question?

Yes. We have -- on the foreign currency we are currently handling, it is the Japanese yen. The Japanese customer wants to pay by the Japanese yen. So there actually -- we had a great -- I mean Japanese yen was so strong in the past. Compared to three months operation from last year and this year, the foreign currency gain was about -- let's see -- about $15,000. Last year, it was about $20,000. So $5000 less kept again. For nine months operation, we had a gain of about JPY130,000 compared to $71,000. Did I answer your question?

Let's see if he has a follow-up question.

So all sales to Europe are denominated in US dollars.

Yes.

I think we had one customer maybe that dealt in euros, but I believe everyone else was in US dollars. Is that right, Momo?

Oh, except one. One of the contracts was done by pound.

Oh, in pounds. That was a consulting contract as opposed to a software license?

Yes, that's correct.

Let's see if Howard has been able to -- it appears as though Howard would still like to ask a question but we need to get his audio PIN for him to join the call. I don't see any other hands raised.

Oh, Howard has sent a written question. Let's see. Walt, can you see the question that Howard has sent?

I'm looking for it now. Okay. What is the current market size of the Eyegaze system? I don't know the answer to that offhand. I know that there were three major players in Eyegaze. A company out of Europe called TOBI, they combined with a company in the US called ATI, so it's now called TOBI ATI. There was the company out of Virginia called Eye Response and there was a company out of Arizona called Eyetech Digital. Recently, DynaVox, who went public here in the last couple of months, acquired Eye Response and basically closed that business down. That had the effect of taking one player out of the market. DynaVox licenses the Eyetech Digital design out of Arizona and manufacture it themselves. DynaVox, by the way does, about $100 million a year in business, we learned, as part of their IPO process -- quite a surprise to me. I had no idea that anyone could do that much business in this field.

But at any rate, what happened when they acquired Eye Response was that a number of our dealers were also Eye Response dealers. Suddenly, they were without an Eyegaze product to serve their market. Now that we have the EyePro system, they have an Eyegaze product again and it is from us. So they were quite happy that they were able to have a replacement product for the Eyegaze business that they lost. Previously, their Eyegaze orders went directly to Eye Response and so we were not involved. Now, with our own EyePro system, we do have a piece of the action there, so we believe, again, that is a significant development for the Words+ subsidiary that really just took place in May. No impact on third quarter but we expect to see an impact on fourth quarter and going forward.

I see another question here from Walter Ramsley. What is the status of the acquisition hunt?

Well, we haven't said anything publicly but it is an ongoing hunt. We have ongoing discussions with companies. It is something that we are absolutely relentless in pursuing subject to the constraints that we have with our size, with the technology that we are in. We are not going to get into a totally new business like real estate. I always joke about that, but we're not going to get into some entirely new business. We want to find companies similar to the kinds of acquisitions we made in the past which allowed us to tangentially expand what we were able to offer into similar markets, closely related markets, something where we know that we can take on the business, manage it, grow it and that it would be immediately accretive. In other words, it will add to revenues and earnings from day one. So that continues; that is a very strong stress for us.

Cash continues to grow, which the good side of that is it allows us to, as the cash grows, it allows us to consider deals that might be a little bigger than what we might have been able to consider a couple, three years ago when we first started doing this.

Let's see. We have a question here -- Travis. What percentage of the final revenue was from new customers versus existing customers. John DiBella, are you on the line?

I am here, yes.

Can you answer that one for me?

The revenue from renewal sales was about 82% of the total revenue for the third quarter. The revenue from new license sales was approximately 11%. The remainder would be due to the consulting work that we did.

Thank you John.

Howard asks -- any EPA or other government activity for your environmental toxicology simulations? There is activity. We, as you may recall, we had an Air Force contract, our first DOD contract, a few months ago related to environmental toxicology. Our understanding there -- in fact we will be presenting a joint technical paper with them in I believe it's in December at a joint Army/Navy/Air Force conference with the results of what we did there which was really a planning study and a coordination of players from around the world, from about five different countries, who are involved in a group that is called the Technical Cooperation Project. It's a very innocuous name, but this is a group that has been around for decades, and it consists of government representatives from the US, Canada, UK, Australia, and New Zealand. So we hosted that meeting, coordinated things, and will be presenting the results of that. That planning meeting was to lead to eventually contracts of various types and sizes that was provide this community of environmental toxicologists with the data they would need to have predictive models built in silico, in the computer, like we do in ADMET Predictor.

The reason we were selected to do that was because of ADMET Predictor and the modeling capabilities that we've developed in that software. So we see that coming.

The EPA last year had a project called ToxCast. They have now extended that and are going to be doing additional experiments to measure a variety of toxicity endpoints with the end goal, again, of being able to build predictive models like what we do with ADMET Predictor. So, there is activity both on the DOD side and the EPA side when it comes to the environmental toxicology. That is an area that we continue to pursue, getting our name out there, and going to the scientific meetings for people that are working in that particular area.

Howard asked any new hires that will be joining the Company soon? Not anyone that has accepted an offer yet, but we are advertising. We are going to be expanding both the marketing and sales staff and the life sciences staff.

A question here from James. You have mentioned that you have been marketing at a number of conferences and industry events. I'm wondering if you could talk about what feedback you have been receiving and if you have been seeing any resistance to the industry progression towards in silico R&D.

Certainly no resistance at all. What we see is, at the various meetings that we attend, first of all, there are more of those meetings. People that organize meetings are organizing more and more meetings it appears, which is kind of interesting when you consider that travel budgets would be expected to be reduced in the global economic climate. But these meetings seem to be growing in number and they're shifting in focus or have shifted in focus to include more and more of the in silico or the computer-based technologies.

It wasn't too many years ago where the word "in silico" was a rare thing to see in a program or agenda for some of these meetings. Now, it's quite often the case that it's a dominant theme or at least a very prominent theme in meeting after meeting. So I would say I don't see any pushback at all. I see the trend moving towards greater and greater use. As we saw in the aerospace industry when I used to do that 30 years ago, the acceptance initially is a bit of skepticism but the products prove themselves, the various ways you can use software now in the pharmaceutical industry. Some of these have been around for 30 years. Most of the newer ones have been around for 10 or 15. The acceptance is there that people that learn to use them in the early days have now moved up into management positions, decision-making positions. So they have an appreciation for what can be done in the computer that perhaps the more senior folks who started out earlier and didn't have a chance to ever use these tools on their own may not have quite the same appreciation.

Let's see. The next question -- Walter Ramsley I believe. Pharmaceutical software revenues advanced 21% during the first nine months. Is that rate of growth sustainable in the current economic climate? Are there are factors that could cause revenues to expand even more rapidly?

I think it's definitely sustainable. I think it has been sustained throughout the last couple of years when everything was in turmoil. We have continued almost a very steady growth rate right around in that range. The factors that I think will make it expand even more rapidly are I believe MedChem Studio.

Now, this is not just a change in name, but a change in function and a change in how we address that market. I think it's going to be a very important change. We have, as I said earlier, GastroPlus is our big moneymaker. We haven't been quite as strong on the chemistry side, the informatics side, at least in terms of revenues. We have been number one in terms of quality of predictions with ADMET Predictor. When you look at the capabilities of ClassPharmer, I think it is very fair to say it was unequalled in what it can do. But it has evolved much further beyond that in the last five years to become this design tool. So it's a data mining tool with some really unique features and it's also a design tool.

I talk about projects the we have that that we are going to fund on our own. I think I mentioned earlier this has become such a powerful design tool now that we have done our own molecule design studies and published them in scientific posters and made presentations around the world in a few different areas to the point where it's almost time now to say all right, put your money where your mouth is. So we are going to spend some money. We are going to design some molecules for a specific target, and we are going to pay someone to make those molecules and run some tests and see if what we predict should happen really does. We have pretty strong faith that it's going to be a positive result. The investment is not that much, maybe $50,000 to $100,000 per exercise.

And so the homerun that has come out of that is, if we pick a target that people are trying to hit, drugs basically hit proteins, and so you pick a protein target that has strong interest out there in the industry, you design some molecules that no one else has designed. It's quite easy to do that because the number that you could possibly design is huge. It's like the number of particles in the universe or something. So it's very easy to design molecules that no one else has ever designed.

If we come up with very positive results, the real homerun there is those molecules can be licensed. When you start designing molecules and licensing molecules, the payoff can be absolutely huge; it could blow the top off.

It's a long shot perhaps, but we have great faith in the tools that we have developed. We see, from the studies that we have done, very encouraging results in the ability to design new molecules to hit a particular target. So that is one thing that could make a difference.

Of course, acquisition is the other. We are absolutely committed to acquisition. We've got this growing cash balance that just keeps growing. We need to invest that. Money market rates are not all that great. So we really want to put that money to work through acquisition, but we're not going to jump into an acquisition just to say we did a deal. If we do one, it's going to be like the other three that we have done, it's going to be a good one, it's going to be accretive, and it will contribute to the business.

The next question from Howard here. All things being equal, what is the remaining value of price increase revenue? I have got to think about what that question actually means. I think what you are saying is how much perhaps percentage growth can we expect to see in the future from price increases.

I think maybe the best way to answer that is to say that the price increases started late in the second quarter, and so at least through late in the second quarter of next year, we should see quarter-over-quarter increases being assisted by the price increase as well as by new sales. Once we get beyond the end of next year's second quarter, then those price increases will have been in effect for a whole year and so quarter-over-quarter looking back, you wouldn't see an assist from the price increase. You'd only see the new business. I hope I answered that question well.

Another question from Walter Ramsley. Has demand for toxicology applications gained traction yet?

I would have to say -- what is the revenue potential over the next 12 to 18 months?

I would have to say they've not gained significant traction yet. We do have the EPA, the Japanese NIES, the National Institute for Environmental Science I believe is the correct name for that Institute. We have even got some, believe it or not, some oil companies interested in the software.

So there are some contacts that have been made. It's a slow start. We need to get our name out there. We haven't been a player in that arena where some other companies have for quite a long time. But we are getting the name out; we are making some contacts; we're getting some software licenses. I believe, as time goes on, I wouldn't even hazard a guess to the actual 12- to 18-month revenue potential, not something that I have done enough homework on to actually put number on. But I would say we are getting ourselves known. You know, when you go to these meetings, it is kind of like seeing an ad on TV or hearing an ad on the radio. You generally don't despond the first time you see it; you've got to see the repeated exposure, the recognition of the brand and so on. So that's what we are building there, is an awareness on the part of people in that area of science that we are there, we are a significant player, and we have tools that can work with them.

That is the last question I see on my scroll so far. I'm looking for a raised hand on the attendee list. I don't see any raised hands, so I think we have waited long enough. I think probably -- well, let's see.

Walter just sent a message in.

There's a question (inaudible)? There's a new question that I missed?

What is the expected tax rate in Q4?

Oh, that's a new question. Momo, what? 34% or 35%?

I would say 34% to 36%, that range.

There is one there I missed from Howard. Are there any additional products that you can develop or acquire that would add further momentum for Words+? Yes, can't really discuss that because nothing is public at this point. But the answer is yes.

I believe that's all the questions. Feel free to call the Company if you have any further questions. We can't tell you anything that isn't public, so you'll probably just hear what you have already heard. Perhaps just a reemphasis of something that is in the public domain.

To summarize, basically the Company continues to grow. We continue to be strong. Those of you that have been with us a while -- I hope a lot of you bought stock last year when it was around $1-something and have seen your money double. Some of you have seen it go down because you bought it back when it was $7 or $8. Well, we are going to get back up there if we can help it. We continue to be recognized as truly a source of scientific expertise on the pharmaceutical side with the highest-quality software in each of our product offerings. This is not us saying that that's the independent evaluations that have been done, GastroPlus and ADMET Predictor.

The MedChem Studio I believe is a potential homerun. I think that one can be a very significant player in the area of molecule design. As I said, we are going to put some of our own money into that. It's a relatively small investment, but the potential for a very big payoff if things work out well.

So until next time, I think our next conference call will -- next earnings will be the end of the fiscal year. The fiscal year ends August 31. Earnings will not be out until about mid-November because this is the 10-Q, and it takes a lot longer to do the annual reports than it does the quarterly reports. Most likely, we will put out a press release with preliminary revenues by the end of August or somewhere in there if there is an investor conference or a reason to do that. I think there is an investor conference in September that we are considering. So if we do that, we would like to be able to provide as much current information as possible.

Also, with the share repurchase program, it's now become incumbent on us to provide public information a little earlier because, if we have any material nonpublic information, we can't repurchase, and that is only fair. So once we know the revenues for the fourth quarter, if we believe that repurchases are in order, then we will probably put out that information so that we have no more information than you have.

We won't know earnings. We generally don't know earnings until a day or two before the actual release of a 10-Q or a 10-K simply because there are so many things that can change at the last minute, particularly taxes but also just through the auditors' reviews and so on, you know, you can sometimes catch things. So, again, we will provide information as much as we can, as early as we can, and we will talk to you next time. Thank you very much for attending.

This concludes today's conference call and webinar. If you missed any part of today's presentation, the audio playback will be available at our website, www.Simulations-plus.com. Thank you for joining us today and have a splendid weekend.