Simulations Plus Inc (SLP) 2017 Q4 法說會逐字稿

Good afternoon. It is Tuesday, November 14, 2017. And on behalf of Simulations Plus, I welcome you to our Fourth Quarter and Fiscal Year 2017 Financial Results Conference Call and Webinar. Presenting this afternoon will be CEO and Chairman, Walt Woltosz; Chief Financial Officer, John Kneisel; and Division Presidents, John DiBella, Ted Grasela and Brett Howell. An opportunity to ask questions will follow today's presentations. You may send your written question 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 the 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 begin with today's presentations, I shall read our 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 new products in a timely fashion, the company's ability to continue to attract and retain skilled personnel, and the company's ability to sustain or improve current levels of productivity. Further information on the company's risk factors is contained in the company's quarterly and annual reports and filed with the Securities and Exchange Commission.

Now it's my pleasure to introduce you to Walt Woltosz, CEO and Chairman of Simulations Plus.

Thank you, Renee, and thanks to everyone who is attending today. So just to give a quick overview and then the details will follow from our CFO and Division Presidents. And then I'll wrap it up at the end. For those of you who may be tuning in for the first time, Simulations Plus is a global provider of software and consulting services for R&D, primarily in the pharmaceutical industry, but now also in food, cosmetics and general chemical industry, and looking to support efforts in some other industries, such as aerospace and general health care.

On the pharmaceutical side, we have products and services ranging from, all the way, the very earliest discovery when the chemist first draws a molecule or uses a computer program to generate, perhaps, a million or several million of them that never existed before and then our tools can allow him to screen those molecules and get rid of the obvious losers right away without ever having to make them and test them into preclinical development, where selected molecules move into laboratory tests, in vitro tests we call them, and animal tests, in vivo tests and then all the way into first-in-human trials in Phase I. We also work in safety research and risk assessment and processing Phase II and Phase III clinical trial data, going beyond patent life to supporting generic companies. I think, we got something in the order of 30 or 40 generic companies now that are using our software and services. And also, a major contract in our Cognigen division for integration of data for multinational R&D efforts, where we have researchers around the world working on a particular problem or disease and to allow them to communicate with each other efficiently and to avoid duplication of effort. This approach is in our KIWI software platform, has provided a very valuable service.

For the fourth quarter, which ended August 31, we did complete the acquisition of DILIsym Services, Inc. of Research Triangle Park, North Carolina, on June 1. So fourth quarter, June, July, August, was our first quarter, including the operations of DILIsym Services. Our revenues were up for the quarter $2.3 million, about 58.3%, to $6.3 million. The net income was up $362,000 or just about 46% to $1.15 million. Our diluted earnings per share for the quarter up about 42% to $0.065 a share for the quarter. And our software renewal rates, 89% based on accounts -- number of accounts, but 93% based on number of fees. And the difference there is that some accounts are very low priced accounts for academics. And often these are for graduate students, who is working on, perhaps, a Ph. D. or master's thesis, graduates, leaves and the software is no longer needed in that institution until another student comes along to use it. But on fees, that's our commercial customers that make up the vast majority of that. And so you can see the renewal rate is quite nice. We did add, in the quarter, 20 new software clients, and our consulting pipeline has really been inflated lately. I guess, inflated might be a wrong word to use, but it's really been growing strongly lately. We're seeing more and more consulting work coming in for all of the divisions.

For the entire fiscal year, at the end of September 1, 2016 through August 31, 2017, our revenues were up about $4.2 million or just about 21% to a little over $24 million. Our net income up $837,000 or just about 17% to $5.8 million. Diluted earnings per share up almost 15% to $0.33 a share beating the analyst estimate. And 88 new software clients were added during the last fiscal year.

To give you an idea of what we do across the 3 divisions, these boxes show the various software programs and then the consulting services and collaborations down to bottom that span the entire spectrum of pharmaceutical drug development from discovery through preclinical and clinical and then, again, the on-patent to generics. On the left-hand said, the ADMET Predictor software is a program that takes in molecular structure such as the drawing that you see in the upper left corner about the word discovery, can take in one of those or hundreds of thousands or millions of those, I think, will predict about 150 properties of those molecules even though they've never existed with ballpark accuracy. You know nothing can be predicted perfectly, but the predictions are good enough that we can screen out of a large library of molecules. Typically, 80% or 90% of those molecules can be rejected because there are just too many things that the prediction, let's say, would not be favorable for those molecules to become a drug. They might be toxic. They might not be able to be dissolved, you can't get it dissolved and you can't get it absorbed. They may be unable to penetrate through cells to get into the tissues, where the target would be. So variety of properties can render a drug-like molecule that looks like a drug-like molecule to be not really suitable for something that you would put into an animal or human.

The MedChem Studio and MedChem Designer software, just below that is used in screening data from high-throughput screens, also is used in designing new molecules. So in fact, we've used the combination of ADMET Predictor, MedChem Studio, MedChem Designer and the program in the upper right there, GastroPlus, in 2 projects, where we actually designed the molecules, had them made and had them tested to see if using our software in public domain data if we could design molecules that would hit certain biological targets. Every molecule that we designed in both of those projects hit their targets.

And the second project actually was required for each molecule to hit 2 different targets, and every molecule hit both targets. So we could show that the approach to in silico drug design works, and it's something that we're very proud of that, that we were able to do that. We announced that before we synthesize the molecules, in fact, before we even selected the molecules, we announced we're going to do that. And we said we would announce whether we're successful or not. Fortunately, we were and we had great faith that we will do.

DDDPlus and MembranePlus in the center are simulations of in vitro or laboratory experiments. So these are experiments involving how drugs dissolve in a case of DDDPlus or in MembranePlus, how well the drug molecules able to go through membranes or get into cells of various types. PKPLus is a new product released about a year ago. Version 1, Version 2 is nearly complete. Version 1 gave us the opportunity to have very serious evaluations done by a large number of organizations. We have a small number of sales so far, but we got a tremendous amount of feedback from Version 1, where people said, "Well, this is really slick, but can you make it do this and that?" And so for the last year, we've been making it do this and that. We were nearly complete and hope to release that product very, very shortly.

KIWI is the data integration platform from our Cognigen division in Buffalo, which is a large data management system. And it's the one that's being used on the large $5 million foundation grant that we have to integrate research data and communicate between research teams across the world working on malaria.

DILIsym and NAFLDsym below that are 2 products from our new division in RTP, North Carolina, DILIsym Services, Inc. DILIsym, D-I-L-I stands for drug-induced liver injury. Many drugs can cause injury to the liver when taken over a long period of time. And the mechanism by which that happens, there are number of mechanisms. These are simulated. And so these simulations are a little different than our other simulations. In that -- these simulations deal with what's going on inside of the cells of the liver, the hepatocytes. So these are very complex models, modeling the biology, the protein-protein interactions and such that happen inside of a cell when drug molecules get in there and interfere with those pathways. The NAFLDsym is a different idea, where DILIsym says here is a drug, it is likely to cause drug injury. NAFLDsym says, "We have the disease, nonalcoholic fatty liver disease. Can we find the drug to help treat that?" And in the case of DILIsym, you can think of that sort of as a [cheaper app] software package that you can license to a number of different companies and it will work for all of them. In the case of NAFLDsym, each version of NAFLDsym is tailored for a specific company and the specific mechanism of action or mechanisms of action that their drug candidates would use. And so it has to be tailored for each company. The general platform is there, but there is always some customization that is required to make it address these specific issues of specific drug molecules for a particular customer.

And then across the board, on the bottom there, you can see consulting services and collaborations with drug companies, with universities and with regulatory agencies. We have several funded efforts from the FDA over the years, 2 of them still active right now. And we've had great success on each one of those.

Recently, a new Commissioner for the FDA was appointed, Scott Gottlieb. And Scott was quoted recently to say that the FDA will soon unveil a comprehensive innovation initiative that will be aimed at making sure our regulatory processes are modern and efficient, so that safe and effective new technologies can reach patients in a timely manner and even make sure that our regulatory principles are efficient and informed by the most up-to-date science. And then he says, "I want to highlight one example of these steps, which we're investing in and we'll be expanding on as part of our broader innovation initiative is the use of in silico tools in clinical trials for improving drug development and making regulation more efficient." The FDA's Center for Drug Evaluation and Research, CDER, is currently using modeling and simulations to predict clinical outcomes in foreign clinical trial designs, support evidence of effectiveness, optimized dosing, predict product safety and evaluate potential adverse event mechanisms. And so there's a great emphasis from the new FDA Commissioner on simulation and modeling. And we think that just bodes well for Simulations Plus and other companies like us who provide the tools to the FDA and to the industry to do that.

As far as our consulting from Simulations Plus that relates to regulatory interactions, there's a nice slide here that John DiBella prepared, which shows that various types of analyses that we have done that resulted in submittals to the regulatory agencies. And you can see formulation optimization, 14 different submittals; preclinical development, first-in-human, 14 different ways; drug-drug interaction predictions, 9 different ways; virtual bioequivalence trial simulations, 8 of those and so on, 8 for pediatric, 7 for food effects, 7 for pulmonary, dermal, ocular or oral cavity product development, different from the typical oral pill that you swallow. These are different routes of administration; 6 for parent metabolite and prodrug modeling and 5 for mechanistic in vitro, in vivo correlations.

Our 2-year stock performance, I usually try to show this chart, and the top blue line is Simulations Plus, the other 3, are the NASDAQ, the Dow Jones and the S&P 500. You can see we've outperformed all of the other 3 indices that are quite handily.

I'll now turn the microphone over to John Kneisel. John, I'll advance the slides for you. I'll try to anticipate, but if I don't, say it -- if I don't do it, then John, just tell me to do it.

All right. Thanks. Thanks, Walt. We can go to the first slide, Walt. All right, we'll go over the fourth quarter results, then we'll cover the year-to-date. As Walt indicated, our revenues for the fourth quarter were up 58.3% or $2.31 million. It is our best fourth quarter ever. $6.27 million of revenues were from Lancaster, which were up $219,000, which was a good fourth quarter for Lancaster. But Buffalo was up 33.6%. They were up $851,000 over the prior year. DILIsym for their first quarter had $1.24 million of revenues. That was a really nice fourth quarter. In comparison to our third quarter, which isn't shown here, we are down about $0.5 million of our third quarter. And for those of you who follow us and we'll look at the quarterly information later on, this is -- normally, our fourth quarter is one of our lower quarters and this is one of our second best quarters ever, with the advent of DILIsym coming in. So really happy with that.

For the quarter, our software revenue was up 12.2% or $300,000, and our consulting was up almost $2 million. So consulting really helped us in this quarter. Gross profits were up 48.2%, $1.4 million. Lancaster was up about 7%, $155,000. And Cognigen was up $560,000 or 81.7%. And DILIsym ended up with $683,000 for the period and they ended up with a 55.2% margin in the period.

SG&A expenses for this period, we were up. One of the big issues that created the increase was a large fees for M&A for the acquisition of DILIsym. We had $323,000 worth of onetime charges in this quarter for that acquisition. So it sort of skew some of the numbers in the period. Overall, we're up $818,000 to $2.43 million and that's total of $1.64 million over the prior period. Actually, selling expenses were down a little bit in the period. Asian reps accounted for $40,000 drop and our advertising was down $27,000, but a lot of that was website redevelopment that we incurred last year. Our professional fees were up $85,000. A majority of that first time our audit fees and such for stocks and stocks and accounting work that was performed in the last quarter. And the salaries for the year were up about $156,000. Good portion of that, some of the stock compensation cost for their noncash costs and some bonuses and such that we accrued in the period that we normally would do in December. We've accelerated some of that this year. Also, DILIsym accounted for about $274,000 of expenses and part of the increase. So we will talk a little bit more about that later on.

Moving down to net income for the quarter, as Walt said, we're up 45.9%, or $362,000, to $1.15 million in the quarter over $790,000 in the last quarter last year. Cognigen contributed $329,000 of that and DILIsym contributed about $206,000 of that. Lancaster actually was down a little bit from the prior year, but that includes the onetime charge of the $323,000. Other than that, they would have been up slightly over the prior year. Earnings per share, we are up $0.019 or really $0.02 the way the rounding works on this, it looks like it's $0.01, but it was really $0.064 a share, so it rounded down and we are $0.046 last year, so it rounded up. And EBITDA was up 32%, $480,000, to just under $2 million for the quarter.

Moving onto the year-to-date numbers. Total revenues for the year are $24.1 million. They're up 20.9% or $4 million, $1.75 million of that increase was in revenues generated by Buffalo, our Cognigen in New York, great increase of 31.4% over the prior year. Lancaster increased $1.18 million, about 8.2% to $15.6 million from 2016. And again, DILIsym recorded $1.24 million in revenues in the fourth quarter.

Our software licenses for the year were amounted to about a little over $1 million increase, while consulting increase was about $3.1 million of the increase for overall year. Cost of revenues, which aren't shown here, they were up $1.7 million to $6.31 million, and labor was about $1 million of that. And then other costs that went into that were pretty -- were the amortization, which was up some for the year and -- excuse me, salaries accounted for the majority of the increase though.

Going down to the margins. Consolidated gross margin increased $2.46 million or about 16% for the year. $805,000 of that increase came from California, which showed about an 83% margin for the year, holding as we normally expect. Buffalo division increased $972,000, up 30.2%, with margins of 58%. And DILIsym showed $683,000 and 55.2% margin. Overall, our gross margin decreased to 73.9% from 77% last year, and that increase is basically just a higher salary cost associated with the mix of business moving a little bit more to consulting with the acquisition and the work in Buffalo, just as -- a little bit higher cost work that we've added there.

Our -- going to selling and G&A. Again, overall the company incurred about $620,000 worth of cost associated with the acquisition of DILIsym. Those are all expensed within the period in which we incur them. So they go right to the bottom line to expense. Commissions for the year were up about $62,000. Total overall, we're up about $1.5 million for the year, which is a hefty increase, but that's again $620,000 as a onetime charges and the -- as you can see here, I think, we've got $270,000 of SG&A of the DILIsym. So 2 of those make up a good portion of the increase in the cost for the year. Overall SG&A costs, salaries and wages increased by about $400,000. Again, a portion of that is increase in stock compensation costs and regular salary increases and some salary accruals from -- that we did in the -- salary and bonus accruals that we did in September -- or August this year.

Insurance expense also increased about $95,000, and $86,000 of which was health-related medical costs and $33,000 of that came from DILIsym. Payroll taxes were up and legal expenses were also up another $61,000 due to some document review and other strategic initiatives we were working on during the year. Amortization increase -- increases came from the acquisition of DILI and those were about $53,000, making up the overall 100 -- $1.5 million, a 22% increase in SG&A for the year. We had one major decrease in expenses and that came in advertising. And again, most of that related to a little bit of reduced web services, but mostly in the cost of the website that we developed in the prior fiscal year.

Research and development. During the year, we incurred about $2.8 million of research and development costs. Of that amount, we capitalized about $1.38 million, and we expensed about $1.36 million or $1.37 million. And in the prior year, we had incurred about $2.6 million and we had expensed about $1.45 million. And again, $71,000 of that was incurred by DILIsym. Our provision for income taxes for the year was $2.45 million. And an important thing here is, our effective tax rate actually decreased this year to 29.8% from 31.6%. That decrease came as a result of some stock-based compensation issues, some people actually sold some stock and we got some tax benefits from people selling their options a little bit early. And so we actually got a little bit of benefit for that during this fiscal year. That is never guarantee that we're always going to get that. So our margins can't expect to have that at that level every year, but that's what created that reduction.

Net income for the year increased $837,000 or 16.9% to $5.79 million from $4.95 million, again, as of note, that with about the stock compensation increasing, which was noncash and an increase by about $238,000 over last year and along with the $620,000 of the pretax cost incurred for the acquisition of DILIsym.

Moving on, there are some slides where you can see the growth here in the fourth quarter of our quarterly revenue slide. Again, things are going up. Hopefully, we can repeat that next year in the quarter.

Next slide. Same thing, just filled the fourth quarter again with revenue and profit, and it's been a fairly steady growth curve across the periods. EPS, again, looks good for the fourth quarter. It's been a solid year. And each quarter has been moving up as we've gone. EBITDA, again, solid performance throughout each one of the periods. We changed the slide around a little bit. We dropped last 3 to 4 years, we've done some major changes. We renegotiated our main royalty agreement with GastroPlus for TSRL. And we spent about $5 million on that project. We paid out about $10 million in dividends, a little over $10 million in dividends. We've acquired DILIsym, and we've acquired Cognigen and spent about $2.8 million in cash on that. But I think, as you can see, our cash balances has remained really solid. We've had an excellent cash position, continue to payout dividends. And actually, the board increased the dividend payment for November to $0.06 a share. And so it's a -- it's just real solid performance.

The ratios continue to be solid. We took on some liabilities in this fourth quarter with the acquisition of DILIsym for the -- some of the liabilities for the acquisition. So some of the ratios will change a little bit this next quarter as some of those things move up into current liabilities. But cash, cash per share, current assets, our ratios are still solid. And our equity is strong. Happy to be where we're at and have a good cash position still. With that, I'll turn it over to John.

Okay. Thank you, John. And hello, everyone, from sunny San Diego, where Brett and I are attending the AAPS annual meeting and seeing lots of really nice work presented on the use of our solutions to support internal R&D and regulatory interactions. Diving a little bit deeper into the products that Walt described earlier, the software development team in Lancaster is working very hard on new releases of all programs. The next version of GastroPlus, the flagship product, is set for release in early 2018. And this version really has something for everyone, including new population models for clinical pharmacology departments and enhancements to our mechanistic absorption models for pharmaceutical scientists. So these, and hopefully, other enhancements should really expand the types of consulting support we can provide and also help us further penetrate into the clinical space with GastroPlus.

ADMET Predictor 8.5 will be released this month. In fact, we hosted a webinar last week on some of the new features that drew over 320 registrants. We've integrated some of the GastroPlus PBPK models into ADMET Predictor to really push Discovery PBPK approaches into early discovery. Getting PBPK modeling into the hands of chemist to more efficiently select lead molecules and also help with lead optimization. We've also incorporated the full MedChem Studio capabilities now into ADMET Predictor. So we've got a complete platform to support medicinal chemistry activities.

We released MembranePlus Version 2 in September and expect to release DDDPlus Version 6 in early spring 2018. These in vitro simulation tools, as Walt mentioned earlier, help inform inputs for GastroPlus PBPK models and we really expect the new features to lead to continued growth in their sales.

And then finally, PKPLus Version 2 is expected within the next few weeks. The new items being implemented come directly from user feedback. And we're really excited to get this new release into the hands of scientists, who are looking to bring in PKPLus and just needed a few extra items, additional functionality added.

Next slide, please. John has already discussed the company's strong performance overall in Q4. Here, I'd like to describe a few highlights for the Lancaster division. We saw growth for the quarter over 8%, which was driven by very strong demand for our PBPK consulting services. The pipeline remains full. And we've also successfully scaled up our staff to meet these increased demands.

Software revenue growth was deemed a little bit by a couple of companies not renewing the software due to budgetary issues, not due to switching platforms or nonuse. But we still had really solid growth in terms of new license customers. As you can see on the bar chart in the upper right, we realized an 8% increase in the number of software license units that were sold for the quarter. We added 25 new software clients, including 14 commercial companies with several outside our core pharmaceutical space. So we continue to penetrate chemicals, consumer goods and so forth.

As a reminder, for us, a new client is defined as a brand-new company or organization, which is never licensed before or an existing group that added licenses in new departments or research sites. And for the quarter, we can see in the lower right software renewal license revenue was about 67% of the total, with new software license revenue coming in over 20% and consulting, training services making up the remaining 11%.

Next slide, please. For the year, the Lancaster division revenue growth was over 8%, very strong gain seen in both consulting and training services. We added 88 new software clients for the year, including new licenses at all of the major regulatory agencies in the U.S. and China. Software renewal license revenue was about 75% of the total, as we see in the lower right, with new software license revenue coming in at 16% and consulting and training services making up the remaining 9%.

Next slide. We continue to see a really nice distribution of software license revenue globally, 47% coming from North America, 26% in Europe, 27% in Asia. We see nice growth in Japan and China. The distributors that we've had there in place now for years are doing a really nice job, pushing sales to more and more domestic companies as they continue to add licenses in those territories. And the newest distributors in Korea and India that we signed up about 6 months ago have done a really nice job organizing workshops over the past couple of months. And we expect them to be able to drive more sales in those growing markets for us as we head into 2018.

And then finally, in terms of marketing activities, the marketing group spent a lot of time creating new video content for the website, which has seen double-digit growth in traffic versus the preceding quarter. And the team is also working really hard on migrating content from the Cognigen and DILIsym Services websites to have one location where visitors can appreciate and understand all of the solutions that we provide.

Additionally, our scientists were busy hosting workshops and on-site training seminars around the globe for the year. We had very successful workshop weeks in all major territories, training on PBPK and pop-PK modeling solutions. And this will continue to be a strategic focus for us heading into 2018 as educating more people on the technology should help with the expansion of our user base. And finally, to help with promotional activities, we hosted 8 webinars for the year on various modeling applications, with several hundred registered for each one. And we maintained a very robust social media presence that has seen a significant increase in engagement over the past year.

And so with that, I'm happy to invite Ted to give an update on the Cognigen operations. Ted?

Thank you, John. I'd like to take this time to explain a little bit about what's going on at Cognigen and some of the initiatives that are behind the growth in revenue that we've seen over this past year. So -- an awful lot of effort in the past year has gone into successfully recruiting and onboarding both software engineers that are going to be necessary to build out the KIWI modeling and communication platform, as well as hiring new scientists. And we've been successful in bringing on board younger scientists, but also some senior scientists, who are going to be able to work with and grow the younger scientists. We've had a number of new marketing initiatives and working out different business and sales models, and I'll explain about that in a moment.

And an important part of all of this continues to be the increasing in synergies and cross-selling between the divisions, in particular, between Lancaster and Cognigen. And we're really looking forward to being able to do the same thing with our new colleagues at DILIsym.

And as I mentioned, we're working to accelerate KIWI development and deployment. In fiscal year 2017, we had relationships with 27 companies, working on 41 drugs, a total of 74 projects. They were 9 new companies in '17 that we had not worked with previously, 36 new projects that were not a carryover from fiscal year '16. And as frequently happens, a number of projects that we work on, as clients became aware of the value of the work that we do, they expanded scope to cover additional questions and issues, and that happened in 40 different projects. There were a small number of projects, 3 of them, that ended up being reduced in scope because the efficacy and safety profile for the drugs involved didn't pan out as the sponsor had anticipated. And at the present time, we have 32 outstanding proposals with 20 different companies. So we have a very healthy pipeline of consulting projects. There has been a marked expansion in the global health initiatives that we have been working on and a number of new consulting projects that came to bear in 2017, with different aspects of both drug development as well as other types of applications using modeling and simulation to get at complicated problems. A number of the projects that we've done were performed with an idea of bridging data between different countries and helping to support regulatory submissions across regulatory agencies in different regions of the world. And we have been working to embed pharmacometric services from first-in-human studies to commercialization of new medicines. And this is an extension of things that we have been doing in the past there. But now with the additional software that's available to us, like physiologically-based PK modeling as well as ADMET Predictor, we're hoping to be able to extend our reach to even earlier in research and development so that we can lock in projects at the earliest stages of R&D.

From a marketing perspective, a big part of that is the work that we present at scientific meetings as well as publications. And in fiscal year 2017, we presented 9 posters at different scientific meetings. We had 3 peer-reviewed publications, 4 invited presentations and 1 book chapter that was published. And we're currently working on 20 publications and 5 conference abstracts, all illustrating the value of our work to our clients.

The most common therapeutic area that we're working on is oncology followed by neurology, endocrinology and infectious disease. And a little under half of all of our projects directly result in regulatory interactions. And some of that is due to the fact that we get started working on a project early. And so regulatory submissions may not happen until later in the life cycle, and we'll pick those up as we go along.

A lot of work has going into the KIWI platform. We continue to work on the contract to design, develop and implement a modeling and simulation and communication platform for scientists working in model and form drug development. We are deploying KIWI version 2 in November of 2017, and this includes a pharmacometric-centric data repository to bridge interorganizational and interdisciplinary knowledge sharing. We're finding that in a number of projects, there is an important need to be able to bring all of the existing data together and organize it in a way so that it's readily accessible to scientists performing modeling and simulation. And the repository that we're building is designed to do exactly that. We've been working on additional model diagnostic visualization tools and working on data visualization improvements within the KIWI platform, so that it becomes a one-stop place to do all of the activities that are associated with modeling and simulation and communication.

We're also working on establishing an international health initiative collaboration that's going to be centralized around the use of the KIWI platform to perform modeling and simulation in a number of different tropical diseases, including malaria. And as part of that, we're actively establishing academic partnerships so that we can introduce students very early to the strategy of working in the KIWI platform to accelerate their work and hopefully, as they get used to working with the program, they'll bring that interest in working with it as they take their jobs. And of course, we've been continuing to do ongoing KIWI demonstrations at all of the scientific meetings that we've attended.

So we're seeing an increase in marketing and sales activities. Our services continue to expand, and we have a healthy pipeline of new projects, including the global health initiative projects that I talked about before, and working to embed ourselves even further into the client organizations as we pick up projects that span the life cycle of research and development.

We've had good cross-selling opportunities with Simulations Plus, and I look forward to working with our colleagues at DILIsym to create an even broader spectrum of business relationships with our clients and expanding the scientific synergies across the companies. And we're continuing to work on the KIWI platform and working to accelerate the deployment. And we now have a complement of our team hired and trained, and so we expect to be able to produce work on KIWI even faster than we have in the past. Thank you.

And with that, I'll turn it over to Brett.

Okay. Thank you, Ted. Well, obviously, we at DILIsym Services are new to the Simulations Plus family. So what I'd like to do today is just present a couple of slides that give a general introduction to who we are and some of the things that we do, add to what Walt mentioned at the beginning of the call today. And then I have 1 slide on where we're headed with some of our current ongoing initiatives.

So DILIsym is really our flagship product. It is focused on, as Walt said, assessing the safety of drugs with respect to the liver. It's been applied for a number of different important clinical decisions that companies have made or development decisions. It can be applied at various places throughout the drug development pipeline. And companies use this software to make decisions like: Should they advance their drug to the next page? Should they invest in a molecule versus other molecules? How does their particular molecule compare to a competitor's molecule? Or which molecule should they pick from a handful of molecules that they're considering taking forward and investing a large amount of money in? All of these with respect to the potential liver safety of a drug. And we've been developing this software over the last 7, 8 years. It's now been used in 13 different -- it has been used or is planning to being used in 13 different regulatory submissions with regulatory agencies around the globe. One of the ones I just wanted to highlight here on bullet 3 is a Food and Drug Administration Advisory Committee meeting in 2016 focused on antimicrobials for the drug solithromycin, so DILIsym was a feature part of that Advisory Committee meeting, and that companies worked to try and get the drug approved. It's currently used, DILIsym, by large, mid and small pharma to address various liver safety issues.

And one of the things that was really nice about joining Simulations Plus is the complementarity on the software side with many of the tools that Simulations Plus offers, including GastroPlus and ADMET Predictor, and how those software products really advance and relate to DILIsym and allow it to work more efficiently and more quickly. So there really is some nice synergy on the product side between the different groups.

So next slide, please. So DILIsym has been developed in the context of what's called the DILI-sim Initiative. And to help with clarification, that's DILI-sim with an I, as you can see at the top of the slide here. And this is a consortium of pharmaceutical companies, mostly large pharmaceutical companies that have contributed to the development of the software, both monetarily, but also scientifically with ideas and their priorities, the things that they would like to see in the software voiced to us over the last 7, 8 years. And currently, we have the 12 companies that you see on the slide in the consortium, the year of 2017. We've had 17 and soon to be 18 of the major pharmaceutical companies in the world to participate in this. And so this has been going on for a while. And what's allowed us to do is to really understand what's going to be the most important questions that DILIsym needs to address. So each of these companies has received a licensing software during their membership term. And one of the things that we've done with the software is also use it for consulting, which is currently a fairly large portion of our revenue at DILIsym Services is the DILIsym consulting projects that we do, partly for our pharma partners and partly for nonconsortium members. You see the FDA, highlighted at the bottom of the screen here, they have been a contributor to this, both by supporting monetarily researchers in our group developing the software but also through scientific insight and evaluation that they provided over the last several years.

Next slide. So just some comments on, yes, several things that are happening within DILIsym. The DILI-sim Initiative is moving into a Stage III now, which covers the time period of 2018 through 2020. We are focused on adding new science to the software, which includes adaptive immunology, new simulated populations that focus on additional diseases and disease states and then also advancing our integration with GastroPlus, so that those software products can be even more complementary and make use even more efficient for the users. So we are currently renewing our contracts for those next 3 years. Some of the consortium members have annual contracts, some of them have multi-year contracts.

In addition, as I said, we continue to consult with DILIsym. We've been, for a long time now, using DILIsym to address clinically-related questions, but we are increasingly seeing preclinical stage projects where companies want to understand what may happen in the future as they move to the clinic and take drugs forward to develop them. And also, we've seen a number of companies focus on differentiation from competitors. So they use the software to help them determine where they sit with respect to a competitor's drug on this issue of safety.

NAFLDsym haven't spoken much about that yet, but this is software that we are greatly enhancing right now through a large pharma company contract, and it currently includes certain aspects of fatty liver disease or nonalcoholic steatohepatitis, NASH. And we're adding 2 of the additional components that are necessary, fibrosis and inflammation, to the software to cover all aspects of that disease. So we've already used it for 3 consulting contracts, and we have a very nice pipeline of additional companies who would like us to use the software to address questions of the efficacy of their molecules.

And finally, we do have a number of other products that we're thinking of developing, one in particular focused on drug-induced kidney injury that we will be moving forward with soon. So in the future, we anticipate additional products coming out that will complement the others that we have and also be complementary to the software that we offer as a whole at Simulations Plus.

Okay. Thank you, Brett and Ted and John and John. Just to wrap it up now, summarize. So fourth quarter, revenues up by 58%. Net income, up about 46%. For the whole fiscal year, revenue is up about 21%; net income, up about 17%; and diluted earnings per share, up about 15%. So a very nice year for us.

All divisions -- all 3 divisions, California, Buffalo and North Carolina, all performing very well. We're realizing the synergies between California and Buffalo, now for 3 years that we've been working together, it's worked out extremely well. And now just in the last few months, we're beginning to see the synergies between California and North Carolina, and we expect Buffalo and North Carolina will also be able to realize synergies of operations there.

We are addressing the regulatory agency focused on applying PBPK model in clinical pharmacology and in safety research. So our PBPK capability in GastroPlus relates to both the work done in Buffalo for clinical pharmacology and for the safety research done in a research clinical product. New guidance documents coming out by the FDA, and European Medical Agency are helping to drive this interest. And we're also executing well on a 5-year $4.7 million contract at Cognigen with a major research foundation. And this contract offers a potential for additional similar contracts with other organizations. We've expanded our offerings now with the DILIsym Services acquisition into a systems toxicology. It's an exciting new area, an up-and-coming area to deal with the very detailed interactions that happen inside of cells. We believe, again, that Simulations Plus continues to lead the trend towards greater use of modeling and simulations in research and development. It's Something that the FDA -- the new FDA Commissioner was very fond of and is encouraging, and so we believe that smooth sailing is ahead. We do have some links here, but I want to stay on the summary slide because I find that, that works better for folks that may want to ask questions. So I will turn it back to Renee to moderate any questions.

Thank you, Walt. Our first question concerns the revenue growth at Cognigen. The question is, what is driving the revenue growth at Cognigen and can it be sustained going forward?

Ted, thank you.

I'll take that. Yes, I guess, several things are driving revenue growth. One is, we've been able to bring on additional scientists to take on additional consulting contracts, which has always been the major source of revenue for Cognigen. So that's one thing. Second, we've picked up some consulting projects in the global health space, which represents a new area for us, and that's kept a number of us very busy. And the third part of this has to do with trying to figure out how to make sure that -- sorry, there's an echo -- that we can illustrate the value of KIWI as a modeling, simulation and communication platform. So while we don't make predictions about the future, we're continuing to put effort into securing new consulting projects and then also continuing to push KIWI as an additional source of revenue.

Thank you, Ted. Our next question, I think, will be for John DiBella. What does the feedback tell you about the potential for new customers purchasing the PKPLus offering once version 2 is released?

Yes, that's a good question. The feedback told us, first, from a positive perspective, that people really liked the streamlined point-and-click workflow. That's really easy to use. But that version 1, the functionality was a bit limited. And so I think we've been able to address this by adding features that make the program stickier, so to speak, scientists using the program to do more prediction activities now to complement some of the data analyses that they were already doing with PKPLus version 1. So I think we're going to make it also easier for users to be able to reuse some of their preferred templates that they've established for mapping certain datasets and generating certain reports, which would also save time running data sets through the program.

So overall, I think scientists in the preclinical development stages can now do more, both from model fitting and also prediction, both in a validated and nonvalidated environment. So ease of use, coupled with the additional functionality now that we brought into version 2, I think can really help us push sales to the PK and toxicology study managers in the preclinical stages that need to generate reports more quickly.

Thank you, John. The next question, I think, will be for John Kneisel. Is the SG&A expense of approximately $275,000 for DILIsym in 4Q '17 representative of what we can anticipate going forward?

I think it's a fair representation. Obviously, there are some labor costs that will change as there's growth, but the unit is a fairly fixed cost unit. So I think it's a fair representation.

Okay, don't go away. This next one, I think, is for you as well. I have not seen the 10-K yet, but will your segment information section have DILIsym's broken out separately in the K and future 10-Qs?

Yes, there is segment reporting for DILIsym in the K and the Q.

Okay. And the next question is, what are some of the additional synergies you see to facilitate growth at DILIsym?

Perhaps that one's for me -- me, for Brett.

Okay, go ahead.

Okay. So I think there are several synergies that we could point to that will help us grow and lead to growth overall. One of them is this more tight integration that I referenced between some of the existing products, such as ADMET Predictor and GastroPlus with DILIsym. So part of what you have to do in DILIsym to run a simulation and to do the technical work is build models for the exposure of drugs and to predict the exposure of drugs, and GastroPlus and ADMET Predictor do that very well with rudimentary basic information. And so I think that will really enhance the ability to move DILIsym into the discovery space earlier in development. So that's one of the things that we're actively working on that will help drive growth. There's obviously some nice marketing synergies as DILIsym is a smaller company and can benefit from some of the marketing initiatives that Simulations Plus and Cognigen are doing in terms of number of odds of seeing and being involved in the process of knowing the products and what they can do. The other -- within DILIsym, I mean I think NAFLDsym can also benefit from some of the products that are part of the Simulations Plus' overall umbrella. And also, as I mentioned, it's being enhanced with a lot of new features right now that are important to allow NAFLDsym to really expand its consulting to a lot of additional companies. NAFLD NASH is probably the #1 disease target for new development in drugs right now with the many, many, many billions in terms of the market size for drugs in that area. So we believe there's a really big market for what we can do with steatosis, fibrosis and inflammation using NAFLDsym once we have it complete. And we do have the dollars already coming in to support that project over the next 12 to 18 months. So there's some areas for growth as well as producing new products that focused on other organs, I'd mention that, too. Did others -- Walt or others have anything to add to that?

Yes, I would just -- it was implied in what Brett said, but just to make it more explicit, the outputs of GastroPlus are inputs for -- part of the inputs for DILIsym and for NAFLDsym. So the ability of GastroPlus to cleanly export a file that can be loaded right into DILIsym without a lot of extra work that used to be required is something we've already got very fairly far along and will be in the next release of GastroPlus here in the next month or 2.

So that synergy is a very important one that really streamlines the process of going from the PBPK simulation that generates the concentrations in the liver for different populations over long periods of time and then those directly into DILIsym to work with the other inputs that come from the lab and other places to do the drug-induced liver injury or the NAFLDsym-type simulations.

Thank you, Walt. The next question, can you provide some additional color as to the steady growth you're consulting services is having in Lancaster. John?

I'd say green.

Okay. So I'll add a little bit more color beyond that. Walt mentioned it, I think, and it's listed there on the summary slide that the U.S. and European regulatory agencies released the very first guidance documents that were focused on PBPK modeling in 2016. In total now, there are over 15 guidance documents that reference the use of modeling and simulation to support some form of drug development for different activities. And so on account of all of this, this big push from the regulatory side, management at companies now certainly realize the importance of modeling and simulation, the real value that it provides and see real opportunities being able to engage with regulatory groups to identify ways in which modeling and simulation could potentially be utilized in lieu of certain clinical studies, or at least to strengthen the case that is being made in some of the sponsor company application.

The issue is that there's still a lack of trained scientists that are available to properly utilize mechanistic modeling and simulation in-house, so more of this is being outsourced to our consulting teams and experts, and this includes companies, both large and small. And as Walt showed at the beginning of the presentation, it does cover a wide variety of application at different stages of research to really, again, support these regulatory interactions.

Okay. Our next question is, with your stock now trading more than 12x trading revenues, has the board considered raising cash through an opportunistic equity raise to give the company M&A flexibility?

I guess, I should take that one. The answer is no. We have been told that if we needed to raise cash that getting a loan for up to $20 million or $30 million would not be an issue, and that was actually several years ago before we've had the additional successes that we've had since then. So we don't really take the approach of raising cash just in case we need it and diluting our current shareholders or paying interest on loans. When we acquired DILIsym, that is all cash, no stock. We paid it out of the treasury. And you can see from the cash chart that we're right back where we were the quarter before we did the acquisition, even with $4 million to $5 million going out. So the answer is no.

Okay. Walt, thank you. The next question, what does an annual license cost for PKPLus? And what are your expectations for number of unit sales within the next year? John?

License fees are in the low single-digit thousands. It's always been a low-cost, potentially high-volume product offering for us. And we hope to see a solid growth rate for the program in fiscal year 2018, I think, similar to what we have seen with some of our other programs, like DDDPlus, over the years as new versions are released. That's the extent of what I would project today.

Thank you, John. The next question concerns the malaria and anti-inflammatory projects, asking what's the status and are there any plans to monetize.

Okay. So those were our 2 new chemical entity projects. We don't plan to take those any further. The molecules that we had, we're able to hit all their targets. They had many good properties. But to take a lead molecule like that and go all the way through all of the preclinical development and clinical development would be a major investment, that is way beyond what a company our size could afford to do. And those -- again, those are lead molecules, those would not be the final drug molecules. So there would be a lot of iteration that would need to be done, a lot of additional testing, synthesis of new molecules. We spent a total of under $200,000 across both of those products combined. We're talking many, many millions of dollars to take it on to the next stage. And as leads, I don't think that anyone would jump on and try to license those leads. We are publishing the results of the work, including the molecular structure, so that people can see that if they were to license our tools and use the internal data that they have that we did not have access to -- we only had access to public domain data, which is pretty limited, and yet we're very successful in both projects -- but the drug companies are not going to put their best stuff out there in the public domain. They've got significant databases in their internal servers that they could use right off the bat and take the similar approach that we did to designing molecules. That's really our -- it's what we do. We're providing the tools and not really trying to be a drug company.

Okay. Walt, thank you. We have one last question, and just in general, I'm not going to make this question specific. But if members of management do sell their large portions of shares at below what the stock is trading at, should shareholders interpret anything from this? I don't know if you can address that, Walt?

Well, I have a 10b5-1 program, which sells a certain number of shares every month. A 10b5-1 program gives me no control whatsoever over those sales. Whatever the price is, whenever the broker decides to sell on certain days or certain times of day, I have no influence at all over that. That's the way a 10b5-1 program works, so that anything I know has no effect on those sales. They're going to happen in good times and bad times, if there are bad times, luckily, so far, we haven't had any. And I don't see anyone selling shares below the market. That would barely -- that would surprise me. I've never seen happen and would not expect it to happen.

Okay. Well, I think that's the last of our written questions. Let me see if anybody is raising a hand. I don't see any further questions. I think that addresses all the questions today.

Okay. Why don't you wrap it up then, Renee. Thanks, everybody.

All right. Well, thank you, Walt. Thank you, John, John, Ted and Brett, for these wonderful great presentations. Before we let you go today, we have 2 investor conferences coming up in December that we want to tell you about. We'll be presenting at LD Micro's 10th annual main event at the Luxe Sunset Boulevard Hotel, and our presentation is on Wednesday, December 6. And we'll also be at Benchmark Micro Cap Discovery one-on-one conference in Chicago on Thursday, December 14. And we hope that some of you might be able to meet us there.

So this concludes today's conference call and webinar. If you missed any part of today's presentation, a replay will be available at our website, www.simulations-plus.com. Thank you all for joining us today. And we wish all of you the very best in the coming holiday season.