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Simulations Plus Inc (SLP) Q4 2020 Earnings Call Transcript

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Simulations Plus Inc (NASDAQ: SLP)
Q4 2020 Earnings Call
Nov 16, 2020, 4:15 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Cameron Donahue -- Partner and Regional Vice President

Good afternoon, everyone. On behalf of Simulations Plus, I welcome you to our Fourth Quarter Fiscal year 2020 Financial Results Conference Call and Webinar. Hosting the call today is Simulations Plus' CEO, Shawn O'Connor; and the company's CFO, John Kneisel. An opportunity to ask questions will follow today's presentations. [Operator Instructions]

Before beginning, I'd like to remind everyone that with the exception of historical information, the matters discussed in the presentation are forward-looking statements that involve numerous risks and uncertainties. The actual results of the company could differ materially from those statements. Factors that can cause or contribute to such differences include, but are not limited to, continued demand for the company's products, competitive factors, the company's ability to finance future growth, the company's ability to produce and market new products in a timely fashion, the company's ability to continue to attract and retain skilled personnel and the company's ability to sustain or improve the current levels of productivity. Further information on the company's risk is contained in the company's quarterly and annual reports and filed with the Securities and Exchange Commission.

With that said, I'd like to turn the call over to CEO, Shawn O'Connor. Shawn?

Shawn O'Connor -- Chief Executive Officer

Thank you, Cameron. Fiscal 2020 was a milestone year for Simulations Plus. We achieved all our stated goals. We accelerated organic revenue growth from the historical 10% level to our 15% to 20% target range. Overall, fiscal year '20 total revenue growth was 22% and organic revenue growth excluding Lixoft was 18% for the year. This was achieved despite the disruption to our marketplace that came with the COVID pandemic. We made a significant acquisition to expand our software business and grow our European presence. And we completed a strategic offering, giving the company resources and scale to pursue additional acquisitions to further bolster our growth rates and broaden the value we can deliver to our clients.

During the year, Simulations Plus continued to build upon its leadership position in modeling and simulation for the pharmaceutical drug development marketplace. In addition to the acquisition of the Monolix Suite product, we enhanced our portfolio of software offerings through internal development and launched several important collaborations with clients and regulatory agencies, furthering our relationship in advancing our technology.

On the consulting side, we continue to broaden our service offerings and have grown our consulting team by approximately 22%. We continue to support clients and demonstrate the value of modeling and simulation to improve the drug development process. Modeling is increasingly important to the process, helping reduce costs, accelerate pipelines and contribute to positive regulatory interactions. The pandemic has only heightened to reinforce this dynamic as the need to accelerate the delivery of therapeutic solutions has been highlighted, the increased use of modeling and simulation, and the significant revenue and cost impact that they have for our clients, underlies our ability to grow revenues, customers and profitability into the future.

For the year, we delivered revenue of $41.6 million, up 22% year-over-year compared to 15% growth in the prior year. Organically, excluding the impact of the Lixoft acquisition, revenue grew 18% year-over-year compared to 15% organic growth in the prior year. Considering the impact of the pandemic, this is a strong result for the company. We achieved strong growth in both our software and consulting revenues. For the year, software revenues grew 16% to $21.6 million compared to $18.5 million and growth of 9% last year. Organically, software revenues were $20 million and grew 8% compared to $18.5 million and a growth rate of 9% last year. For the year, consulting revenues grew 30% to $20 million and compared to $15.5 million and growth of 21% last year.

Turning to the fiscal '20 fourth quarter revenue. Total revenues grew 19% to $9.5 million compared to $8 million and growth of 20% last year. Organically, overall revenue grew 7% to $8.6 million compared to last year's fourth quarter. For the fourth quarter, software revenues grew 24% to $4.7 million compared to $3.8 million and growth of 17% last year. Organically, software revenues were flat at $3.8 million compared to last year's fourth quarter. For the fourth quarter, consulting revenues grew 14% to $4.8 million compared to $4.2 million and growth of 23% in last year's fourth quarter.

As those of you who have followed us know that fourth quarter is a seasonally our slowest revenue quarter, for several reasons, including pharma software buying patterns and our license revenue recognition policy, as well as the impact of summer time clients and consultants availability. In addition to these ongoing phenomenon, this year's fourth quarter revenue growth was impacted as follows. Four software clients reduce their licenses by about 25% from prior year levels because of acquisition, site consolidations and/or layoffs in their organizations. This impacted our software renewal rate for the quarter, which came in at 88%.

From time to time, we experienced this type of change in our installed base, but we do not expect this to impact our historical renewal rate, which is about 93% going forward. In fact, despite this fourth quarter outcome, our software renewal rate for the year remained at 93%. Additionally, discussions are ongoing with three of these software clients and the potential for incremental module and/or collaboration business in their new budget year.

Last year, we experienced some slippage of software renewals from Q3 to Q4, clients that fully renewed but did not complete the process timely, resulting in sequential revenue growth last year of 4% and 17% in Q3 and Q4. This impacted the fourth quarter year-over-year growth rate this year, with no real impact in annual revenue growth or renewals. New customer license growth has continued to be slowed down by COVID. However, these opportunities appear to be delayed, not paused, and we expect some level of pent-up demand as things normalize.

On the consulting side, revenue sourced by our DILIsym QSP services begin to accelerate late last year and peaked in the first quarter of this year at 138% growth. As a result of project timing and mix, these DILIsym QSP service revenues were down 4% in the fourth quarter compared to last year. Fiscal year '20 full year growth for DILIsym QSP services was great at 42%. This quarter's growth is reflective of the larger nature and timing of DILIsym QSP projects and resulting revenue recognition thereof. Our overall revenue growth expectations remain unchanged. I'll speak later in the call about overall companywide revenue growth expectations, which again remain unchanged.

Let me speak to each of our software and consulting service segments. First, with regard to our software business. Our software revenues represented approximately 52% of total revenue compared to 55% last year. For the full year of Monolix Suite revenue, we expect software to move back to and perhaps above the 55% plus level in fiscal year '21.

GastroPlus continues to serve as our flagship product and generates the largest individual portion of our software revenue. You can see the contributions of ADMET Predictor and then new contribution from Monolix Suite, which contributed only five months of revenue since we closed the acquisition in April. For the full year of revenue contribution in fiscal '21, we anticipate Monolix Suite will contribute approximately 10% of our total revenue.

During fiscal year '20, we advanced the science and client value of our industry leading PBPK in machine learning platforms and broadened our offerings with the acquisition of the Monolix Suite. Today, we offer our clients leading modeling platforms across the spectrum of modeling techniques utilized in the drug development process. During the year, we entered into 12 R&D collaborations with the FDA and large pharma companies for enhancement of features and functionalities of our software. Such endeavors contribute significantly to the expansion of capabilities, increased use cases, which drive demand and solidify our standing with the regulatory bodies and our customers. Combined with our own R&D investment, we have maintained our leadership position for our modeling platforms.

GastroPlus, GastroPlus remains well established as the leading PBPK modeling platform in the industry. We recently released GastroPlus version 9.8, which includes the industry's first mechanistic model for intra-articular delivery and a revamped virtual bioequivalence trial simulation engine to address many of the requirements published in the FDA's new regulatory guidance document on PBBM applications.

ADMET predictor, during September, we released Version 10.0 of ADMET Predictor, which we will market as APX. Key enhancements in APX include; a new AIDD module for AI-driven drug design using multi-objective compound optimization integrated with physiologically based pharmacokinetic models, a new transporters modules containing machine learning models for pivotal transporters under regulatory guidance, significant improvements to the HTPK Simulation Module driven by our strategic collaboration with a large pharmaceutical partner, multi-threading capabilities for all prediction processes, including mechanistic HTPK simulations.

The new AIDD module was released with APX is a separately priced module used with ADMET Predictor functionality. We also entered into a collaboration with a pharmaceutical company to evaluate and validate the new AIDD module. Our computational chemists work with the partners team to define the multi-objective parameters against which the lead molecules needed to be optimized. We are pleased with the value demonstrated in this partnership today.

Monolix Suite, in October, we released Monolix Suite 2020R1, among the new features included in this release was a new Simulx module. It is a powerful and flexible simulator for clinical trial pharmacometrics with an easy-to-use interface. In addition, it allows for a complete modeling and simulation workflow from data analysis in non-compartmental analysis to population modeling and simulation with fully interoperable applications. It provides users with a fast, easy-to-use and powerful suite of applications for pharmacometrics analysis modeling and simulation.

Integration with Lixoft has proceeded smoothly. All operations have been fully integrated and this process went faster and more smoothly than we anticipated. We're revamping collaboration between sales and marketing functions, including integrating Monolix Suite sales and marketing into the Simulations Plus infrastructure and training our consultants to use Monolix to facilitate future cross-selling.

With regard to a few other key metrics for our software business, as previously commented upon, our fourth quarter renewal rate on fees were impacted by the four clients who reduced their renewals by about 25% and brought our metric down for the quarter to 88%. At the same time, we saw a lower-than-usual churn in our academic and non-profit accounts, resulting in a higher renewal rate based upon accounts. For the year, we maintained our high renewal rate at 93% and expect this trend to continue into fiscal year '21.

During fiscal '20, our new software license close rate was slowed and this is reflected in our new customer metrics for the fourth quarter compared to last year. That said, we finished the full year with an increase in new software customers compared to the prior year. And when we focus on our commercial clients, who contribute 94% of our software revenues, our net commercial software client count in revenue grew 16% and our number of customers whose license value to us exceeds 100,000 grew 40%.

Let me shift now to our consulting business. Our services revenue grew at 30% for the full year compared to 21% growth last year. For fiscal year '20, our consulting revenues were sourced 23% of total revenues from PK/PD services, which are primarily delivered by Cognigen, 15% of our total revenues from QSP/QST services delivered by DILIsym, and 10% of our total revenues from PBPK services delivered primarily by our Lancaster Group.

Our consulting business continues to perform well, with strong revenue growth and profitability. We support our clients' use of modeling and simulation to positively impact their drug development programs through both the outsourcing of their modeling and simulation needs, as well as in addressing specific issues encountered in development programs. We're particularly pleased when we are able to contribute to regulatory achievements that advance special -- specific drug programs.

Recent examples of this include, the FDA approval of Ubrogepant in which DILIsym modeling predicted liver safety profile supporting its advance to Phase 3 clinical trials and ultimate approval without labeling warnings were the first two drugs in class failed due to significant liver toxicity. The FDA approval of Pexidartinib, the first symptomatic therapy for treatment of symptomatic tenosynovial giant cell tumors or DILIsym liver toxicity analysis supported its NDA.

And finally, the inclusion of DILIsym liver safety analysis and the scientific review of the State of California Office of Environmental Health Hazard Assessment of acetaminophen. These are but a few of the examples in which modeling and analysis as a simulation analysis is impacting our clients interactions with regulatory agents.

During fiscal '20, we introduced two new service offerings. Regulatory strategies headed up by Sandra Suarez-Sharp, who joined us after a long tenure with the FDA. The objective of these services is more strategic versus data analysis in assisting our clients on how to derisk and accelerate their interactions with global regulatory agencies.

COVID strategies, many of our clients have obviously focused their efforts on the development of potential therapies for COVID. During the past quarter, we were engaged in multiple discussions related to these programs and have recently closed several contracts in this area. And finally, we continue to grow our capacity to meet the needs of our clients. During fiscal year '20, the consulting staff grew by approximately 22% in support of our project growth and positioning us well for fiscal year '21.

We generated strong growth from each of our consulting sources, during the overall -- driving the overall 30% growth rate for our consulting businesses in fiscal year '20. PK/PD consulting revenues grew 24% for the year. QSP/QST consulting revenues grew 42% for the year, and PBPK consulting revenues grew 30% for the year. The diversification of our consulting revenue sources is important in smoothing, consulting revenue fluctuations. And finally, our consulting backlog continues to exceed $10 million at the end of the year. While the slowdown of new contracts because of COVID prevented us from growing backlog in the year, we're still well positioned as we enter fiscal year '21.

Let me turn to our fiscal '21 outlook. Our goal is to maintain fiscal year '21 organic growth in the 15% to 20% range, in line with the 18% organic growth we delivered in fiscal year '20. In fiscal year '21, incremental Lixoft revenue could contribute an additional 3% to 5% of revenue growth on top of the organic growth. Any revenue contributed by acquisitions closed in fiscal year '21 would as well be incremental to this. Certainly the pandemic will continue to create headwinds as we enter fiscal year '21. New software license customers and new consulting service contracts will continue to close at a slower than historical pace. We're currently in the budgeting season for most of our clients and we've observed and participated in their efforts, which have often included reallocation of R&D spend to accommodate their ongoing investment in COVID-related therapies. We expect that this budgetary process when complete will provide some stability to programs that over recent times have been on hold awaiting decisions.

We are targeting software growth of 20% to 25%, up from the 16% in fiscal year 2020. This growth rate is based on the new version of 9.8 release of GastroPlus. And in fiscal '21, we expect the release of Version 10, which we will market as GPx. Additionally, ADMET Predictor growth, which accelerated in fiscal year '20 will carry momentum into fiscal year '21 and have additional revenue opportunity with the new AIDD modules. Monolix Suite is performing well and tracking to their 15% and 30% growth rates as anticipated in their earn-out agreement. We're rolling out a modest price increase and changes in our discount policies. And finally, our focus on cross-selling initiatives will help us accelerate software growth. Higher sales and marketing resources and infrastructure investments are now being focused on strategic sales initiatives that will provide benefits.

On the consulting side, we anticipate growth rate in fiscal year -- our growth rate in fiscal year '20 of 30% to be in the 25% to 30% in fiscal '21. We see continued demand across our services with PK/PD and PBPK services remaining consistent, DILIsym demand is expected to settle into a more consistent delivery of project flow, with the growth rate in line with historical trends. Growth will continue to benefit from the continued success of our regulatory assistance offering and the COVID strategies program. Overall, I expect the accelerated growth we have delivered in fiscal '20 to continue into fiscal year '21.

Finally, let me speak briefly to our M&A strategy. We are actively engaged in M&A efforts focused on a population of targets that we believe could add value to our growth [Technical Issues] and serve value to our client base. The targets consist of both software entities that extend our modeling and simulation application offering portfolio and service opportunities, which provide new service capabilities and/or add to our service capacity and geographic coverage.

We have been successful in our historical M&A efforts in large part due to our focus and rigor in evaluating acquisitions. We continue to adhere to strict acquisition criteria that include product and culture fit, enhancement of value to our clients and appropriate valuation and accretive characteristics. I'm pleased with the progress that we have made, effort to date and excited about the size and quality of the pipeline. That said, we plan to move methodically and cautiously, with the goal of continuing our M&A successes, safeguarding shareholder capital and creating sustainable value.

I'll now turn the call over to John to review some detailed financial results. John?

John R. Kneisel -- Chief Financial Officer

Thank you, Shawn and good afternoon to everyone. Our consolidated net revenues for the fourth quarter of fiscal year '20 were up 19% to $9.5 million compared to $8 million in the prior year quarter. On an organic basis, which excludes Lixoft acquisition, our revenue grew 7%. As Shawn indicated, organic growth was lower primarily due to four clients reducing licenses as a result of acquisition, site consolidations and layoffs. In addition, last year, the fourth quarter saw sales that were expected to close in the third quarter, instead slipped into the fourth quarter.

As well, our DILIsym division's consulting revenues came in higher than normal as certain projects accelerated into Q4 '19 that have been expected to be delivered in the 2020 fiscal year. Sorry about that phone. Both ultimately affected the growth rate in the fourth quarter. The general sectors we operate in, software and life science pharmaceutical have tended to maintain momentum in the midst of the pandemic. So as Shawn mentioned, we faced modest headwinds in securing new accounts and we've experienced some smaller renewals due to site consolidations of some of our customer sites.

Consolidated software and software-related sales increased $919,000 or 24% over the fourth quarter of '19. Lixoft sale -- software sales accounted for this increase as organic sales were relatively flat during the period. Consolidated consulting and analytical studies increased about $600,000 or 14% over the prior year. Cost of revenues increased 17% or $384,000, resulting mainly from increases in labor-related costs, which were partially offset by a decrease in direct expenses on contracts as less of the consulting projects required lab testing during this quarter.

In addition, we saw lower customer training-related costs as most training was completed virtually due to COVID restrictions. Total gross profit increased 20% to $6.9 million, representing a 72% gross margin in the fourth quarter of the fiscal year compared to a gross margin of about 71% in the same quarter last year. Overall, software margins were 82% and consulting margins were 62% for the quarter.

SG&A expenses were $3.7 million, or 39% of revenue in the fourth quarter of this year. The dollar increase of $531,000 or 17% compared to $3.2 million, or 40% of revenue in the fourth quarter of fiscal '19. This increase in SG&A expenses was primarily the result of increases in selling expenses and commissions, salary and wage increases and labor-related benefits in support of company growth and some increased depreciation and amortization expense, mostly associated with the Lixoft acquisition.

We saw decreased travel expenses. Again, as said, based on pandemic-related cancellations of conferences. The total of $291,000 of this total increase came from new subsidiary during this quarter. Research and development expenditures for the fourth quarter were $1.6 million. Of this total, $948,000 was expensed and $621,000 was capitalized. This compares to $1 million of spend in the year ago quarter with $603,000 expensed and $406,000 capitalized.

Income from operations was $2.2 million for the fourth quarter of fiscal year 2020 compared to $2 million for the fourth quarter of '19. The increase was primarily driven by higher gross margin on increased revenue, which was offset by an increase in operating expenses. The provision for income taxes in the fourth quarter of fiscal year 2020 was actually a benefit of $150,000 for an effective tax rate benefit of 7%. This compares to a tax benefit of $72,000 in the year ago quarter.

This tax benefit comes mainly from corporate tax deductions based on an increased number of options exercised and sold in the fourth quarter as some employees sold shares based on the increased stock prices. Also, foreign tax credits and foreign deemed intangible income deductions helped to lower our tax rate. The same situation occurred in the same quarter last year with respect to the stock compensation.

Net income increased by 6%, $129,000 to $2.2 million in the fourth quarter of fiscal '20 compared to $2.1 million in the year ago quarter, due primarily to the tax benefit I just discussed. On a per share basis, net income was $0.11 per diluted share in the fourth quarter this fiscal year, the same as the $0.11 in the fourth quarter of last fiscal year. EBITDA was $2.9 million in the fourth quarter this year compared to $2.6 million last year.

Now turning to an overview of the financial performance for the fiscal year. Consolidated net revenues for fiscal year 2020 were up 22%, or $7.6 million to $41.6 million compared to $34 million the year before. Our gross margin for fiscal year 2020 was 74% compared to 73% last year, an improvement of 100 basis points. SG&A expenses, including $1.4 million of M&A transaction-related costs associated with the Lixoft purchase were $16.4 million or 39% of revenue for fiscal year 2020, compared to $11.8 million or 35% of revenue for last fiscal year.

In our second and third quarters, we incurred a total of $101.4 million of acquisition-related costs in the fiscal year '20 for legal accounting, due diligence and M&A banker-related fees. Without those M&A transaction costs, SG&A would have been approximately 36% of revenue. Our research and development spend last year was $5.3 million, up $1.1 million from $4.3 million. The expensed portion increased to $0.5 million to $3 million. For the full fiscal year, R&D expensed as a percentage of revenue was relatively unchanged at about 7%.

Income from operations for fiscal year 2020 was $11.6 million compared to $10.6 million last fiscal year. And net income increased by $749,000 or 9% to $9.3 million. Our effective tax rate for the year was 18%, down from 19% in 2019. We expect our tax rate to be in the low 20s, in the 20% to 23% range for next year, but this rate will depend on the effect of stock and foreign-related deductions and credits. Diluted EPS was $0.50 per share for fiscal year 2020 compared to $0.48 last fiscal year. The Lixoft-related transaction lowered diluted EPS by about $0.06 per share for those expenses. EBITDA was $14.4 million for fiscal year 2020, up 7% compared to 13.4% in 2019.

Moving to the revenue slide. This slide shows quarterly revenues. Please note, as Shawn mentioned earlier, the third quarter of each fiscal year is typically the strongest, followed by a decrease in revenue in the fourth quarter that coincides with the slowdown of our clients' purchasing in the summer months. Each quarter this fiscal year, we showed increasing sales. Our EBITDA generally follows the same quarterly seasonal patterns as our annual revenues, with the third quarter being the highest quarter, followed by lower numbers in the fourth quarter summer months.

This slide provides average revenues per commercial customer. Note that it excludes software revenues from academics and non-profit entities. Software annual revenue per customer has been relatively flat, but we see this as an opportunity going forward as we execute on our cross-selling and pricing strategies.

This top slide shows gross profits for both software and consulting revenues and the blended total software margins. We've maintained fairly steady margins in both business lines, with software ticking up slightly with the advent of the Lixoft purchase in 2020. Our consulting business is high-margin technical work, which allows for higher contribution margins than normally would be expected in the consulting business.

The bottom of the slide shows annual EPS for the last three years. The blue line is, as it was reported in our Ks and the red line is pro forma EPS, taking into account the effect of acquisition-related expenses in 2020 and the effect of the implementation of the new tax laws on deferred income taxes in 2018. With these pro forma results taken into account, you can see the steady increase in EPS that's been generated from year-to-year.

This slide is our revenue by region for the last few years. We're a global business with the majority of our revenues here in the Western Hemisphere. In 2020, approximately 71% of revenues were sourced in the Americas, while Europe represented 14% of the total and Asia 15%. About half of our Asian sales were derived from sales in Japan. European and Asian sales are mostly software related.

Turning to the next slide. The company generates positive cash flow from operations. This cash is historically allowed for small acquisitions, has also allowed the company to consistently pay a dividend. The company has paid quarterly cash dividends from the excess cash generated from operations. These dividends have totaled over $4 million each of the last three years.

During the fourth quarter of 2020, we completed a secondary offering of about 2.1 million shares of our common stock at an offering price of $55 per share that raised about $108 million after underwriting discounts and commissions and other offering expenses. This capital raise allows for growth in acquisition as Shawn has discussed our growth strategy. These offering funds have been invested in short-term risk adverse investment grade instruments, mainly corporate bonds and government instruments. At the end of fiscal year 2020, we had $116 million of cash and short-term investments.

This next slide provides some data on employee headcount. The company has grown by 54 people since the beginning of 2018, both through hiring and acquisition. Our scientific staff has increased by over 60% in the period, supporting an increased ability to combine services and support software innovation and development.

Turning to next slide. I'll just cover some basic financial metrics. At the end of the year, as I said before, our cash and short-term investment balance was approximately $116 million compared to $11.4 at the end of last fiscal year. This increase is from the proceeds of secondary offering we just discussed. We used cash generated from the year for acquisitions and the final payout of an earn-out for DILIsym. Our balance sheet remains strong with excess cash and zero borrowed debt. With our continued cash flow generation and prudent approach to allocating capital, we are well positioned to support our continued growth and protect our business during economic cycles.

I'll now turn the call back to you, Shawn.

Shawn O'Connor -- Chief Executive Officer

Thank you, John. In conclusion, this was a tremendous year for SLP. We achieved our goal of increasing our organic growth rate to the 15% to 20% level. We made another beneficial acquisition, adding Lixoft to the Simulations Plus family. We view this as a significant addition to our software portfolio and an addition of talented scientific staff to our organization.

We positioned ourselves for future growth with the completion of our capital raise in August. As a company, we remain focused on delivering good science, measurable value and quality service to our clients. I'm proud of the work we've done in the accomplishments of this company. And I thank the employees and partners of Simulations Plus around the world for their hard work and professionalism, all amid, what has been a challenging time for all of us.

And with that, I'd like to turn the call back to the operator and take any questions you may have.

Questions and Answers:

Cameron Donahue -- Partner and Regional Vice President

Thank you, Shawn. [Operator Instructions] The first question is from Matt Hewitt with Craig-Hallum.

Shawn O'Connor -- Chief Executive Officer

Matt? You might be muted, Matt.

Cameron Donahue -- Partner and Regional Vice President

Matt, are you muted? Okay. Hold on a second. We'll move on to the next question. Next question is from Curtis Scott. [Phonetic]

Shawn O'Connor -- Chief Executive Officer

Are you on?

Curtis Scott -- Analyst

I'm on. Thank you. Wonderful reports. My question is a very general one as an investor and maybe it's too broad. But the question is how does Simulations Plus plan to use 5G and Quantum Computing to improve its products?

Shawn O'Connor -- Chief Executive Officer

So, Curtis, thanks for joining us today and appreciate your long-standing tenure in support of the company.

Curtis Scott -- Analyst

My pleasure.

Shawn O'Connor -- Chief Executive Officer

Well, those two technologies contribute to increased processing power and speed. And I can't say that we're leveraging those two individually. But the speed of our processing of our analysis or Simulations is an important factor. We have historically delivered well in that regard and in many bake offs, some competitive sort of analysis always come out on top. I mean during this last year, one of the key features or improvements in the ADMET Predictor and specifically the AIDD module were improvements made in terms of the processing and our ability to analyze all molecule accounts on a fast pace and that certainly is accruing to our clients.

We utilize multi-core processing capabilities. We have the ability to ourselves or for our clients to access the web services to reach out and garner more horsepower. Our clients, their internal work IT departments provide that sort of infrastructure as well. So, we're well positioned as we speak today and we'll will always look to keep improving in that regard. Going forward, it does not seem to be a gating item at this point based upon input for clients, but always pushing the edges to do it bigger, better and faster.

Curtis Scott -- Analyst

Great. Good to hear.

Cameron Donahue -- Partner and Regional Vice President

Thank you. [Operator Instructions] I will go to some of the written questions that we have that were sent in. First one is from Howard Halpern. Are there any internal expansion initiatives that you're looking to advance such as development of your own multi-library and/or expand your artificial intelligence capabilities into new product offerings outside of drug development?

Shawn O'Connor -- Chief Executive Officer

Thanks, Howard. We have a R&D strategy and are looking at both the advancement of our existing products, as well as extensions thereof like, that which we delivered this past year with the AIDD module and always exploring other areas. Our focus in the healthcare market is pretty strong. It's a market that requires a lot of domain experience in order to apply modeling and simulation technologies, techniques. And that is where the vast majority of our business is.

Obviously, the value of the AI and data mining technology that we develop may have benefits elsewhere. And in those adjacent markets to our business and the consumer agribusiness area, we do have some clients in that space and there may be value for that technology in the long run in other markets. We've got a lot of opportunity in the market we play in right now and focus our efforts pretty much in that arena.

Cameron Donahue -- Partner and Regional Vice President

Thank you, Shawn. We do have one additional question here as far as the written questions. With the recent capital raise, what is your current acquisition strategy? What are you looking for as a acquisition target at this point?

Shawn O'Connor -- Chief Executive Officer

Well, as I pretty consistently stated out there, we're looking for acquisitions that can increase our offering to our clients and the value of the modeling and simulation suite of products, as well as services that we can offer to them to enhance our position as a strategic vendor for them. So, our targets out there are acquisition opportunities consists both in the software side as well as the service side, number of products out there that fit into the continuing modeling and simulation through the drug development cycle. Some of them are small, probably medium-size. Many of them are small, which would add functionality to our existing products, number of opportunities in that direction.

On the service side, the opportunity is to accelerate the expansion of our capacity. But probably more importantly, strategically from a geographical point of view, we don't have too many boots on the ground in Europe and have no consulting staff in the Asian markets, as well as the expansion of the types of services that we can offer. We brought a new service offering to the markets this past year with regulatory services by the hiring of Sandra Suarez-Sharp. That as an example is achievable through acquisition as well in terms of practices that offer a type of service in the umbrella of modeling and simulation that we don't currently offer to the marketplace.

So, I'm looking for opportunities that fit in from a culture point of view, from a product to the client point of view, but always underlying that companies that are accretive in nature and can be acquired at an appropriate valuation. That's the framing of our work effort on the M&A side right now.

Cameron Donahue -- Partner and Regional Vice President

Thank you, Shawn. I do have Matt Hewitt with Craig-Hallum for the next question. I've got his line now. [Operator Instructions] Matt, you are live.

Matt Hewitt -- Craig-Hallum -- Analyst

All right. Thanks so much and congratulations on achieving all of your targets for the year. So that's especially given the environment, that's not an easy task. Maybe first up regarding the -- you are almost done with the first quarter here yet we're also seeing a spike in coronavirus in many parts of the country. Maybe what are you seeing here in the first quarter? Are you seeing that normal seasonality, where things start to pick up a little bit or because of the pandemic or is it still -- are there still some puts and takes that you're having to deal with?

Shawn O'Connor -- Chief Executive Officer

Well, yeah, fair question, Matt, and welcome. I'm glad you got the pin. It's good to hear your voice. I was imagining what your question would be. COVID has certainly reared its head and we're seeing step back and lockdown and other responses around the world. I would characterize this as being an ongoing existing situation. I don't think it's overly exaggerated by recent events, France locking down over the last few weeks, as an example. Operationally, our group at Lixoft, under that lockdown, continue to work well work from home.

From a customer point of view, I think we were operating in diminished ability to reach out and visit and meet with our clients face to face. This is conference season for our industry as well. And so we've -- those conferences have continued but on a virtual format, which has provided some opportunity to interact within our industry, within our clients, but not fully is functional as a on-site conference situation. So, I wouldn't say that anything of recently has changed it. It's what we've been experiencing for really since March timeframe of this year. So, we continue forth.

The one benefit, I think is that the calendar year brings those budgetary cycles in to play for our clients and those budgetary cycles are playing out. They are affected by COVID in terms of their allocation to therapeutic areas, therapeutic programs. But it's worthy endeavor from our perspective in the sense that upon the completion of those processes they have established and set their budgets and we operate with a little bit more certainty as opposed to the last number of months have been uncertain as to what the budget impacts are going to be.

I'm always optimistic that you go through these cycles and then all the answers are there. I'm sure some cautiousness and wait and see will continue forth into the future. But I think it will bring some more definitive answers and game plans on the part of our clients for us that we can respond to. So a short answer to your question is that while the environment externally has seemed to tick up in terms of COVID, I would say that for the most part, it's the same as we've been experiencing since March.

Matt Hewitt -- Craig-Hallum -- Analyst

Got it. Okay. Thank you. And then shifting gears a little bit. I think you mentioned during your prepared remarks that at least on the consulting side, you would increase your staff by roughly 22% during the year. I'm just curious as your business continues to grow and expand, what does the talent pool look like? Are you still able to find the right people and how is -- as bioinformatics, I guess, more broadly modeling as well, but as bioinformatics becomes a relatively hot market it seems as of late, are you competing with others? What has that done from a cost perspective? Any color on along those lines?

Shawn O'Connor -- Chief Executive Officer

Yeah. Fair enough. It is a competitive market for the profile of science that we need in order to support our consulting efforts, support our software development side of our businesses as well and has been -- always been competitive. And to the benefit, there certainly are more candidates of their profile available today than in the past. But still it's a relative shortage in terms of the need out there that needs that it source both from ourselves and our clients really looking for this staff. It does put pressure on the compensation side. It always has. But as you can see, we've held our margin pretty well in the consulting business pretty consistently at that 63% mark. So, we are able through efficiencies and passing on the cost to our clients, maintain our margins in that arena.

So it continues to be a priority for us, a very important component of our business, our ability to attract new people. But I've been very positive about our results and attracting some very significant people from academia in terms of people coming out to the marketplace from that world, from industry where we cautiously, occasionally hire very good candidates from existing or potential clients out there and as well others that compete with us for candidates and source some people from other consulting or other vendors to the industry. So, we've fared pretty well in this regard and look forward to continuing that effort is an important one for us. But we've been able to meet our needs to date and I fully anticipate we will be able to meet our needs tomorrow and into the future.

Matt Hewitt -- Craig-Hallum -- Analyst

That's great. And then one last one from me and I'll hop back in the queue. And I think you had a slide commenting on a couple of the successes you had during the quarter where you -- and you announced via press release both with the FDA and getting drugs approved or drugs that maybe -- competing drugs that failed and you're able to help a client get something through into approval. Maybe what -- is it possible to quantify the importance of those types of events? And I mean -- because if you look historically, can you tie those types of events with an uptick or an increase in adoption within quarters or within a year or two of something like that happening? And what does do these recent success stories may be mean for fiscal '21 and '22, as you look out over the next couple of years? Thank you.

Shawn O'Connor -- Chief Executive Officer

Sure, Matt. Maybe if we dedicated a few of our scientists to modeling the announcements in the follow-on effects, maybe I'd be in better position to answer the question on a metric basis. I can't say this, but these are the types of announcements that garner the attention in industry, our clients in terms of the value. And yeah, it's been a very successful quarter in regard to some of the impacts that DILIsym has had on very specific drugs, the advancement of drugs to the market that otherwise may not have even made it into clinical Phase 3 clinical trials.

How do you calculate the ROI there? Well, you can take that entire drugs revenue stream and say that may not have existed had it not been for the confidence that we were able to provide the client and taking that drug into clinic. So the magnitude can be big. It expands those in industry that are looking to apply modeling and simulation, not only in the specific target area that an announcement of that might make, but it more broadly opens up eyes into how else can we apply modeling and simulation in other areas and as those use cases increase the demand for our software products, so that our clients can perform these analysis themselves or the demand for our consulting practice for us to come in and perform on behalf of our clients. And all those all provide wind in the sale for us going forward.

The attention at speed to market has gotten based upon the pandemic is when I wait through the pros and cons and look for the silver lining, the highlight that it's the spot line, it's shown on the timeframes that are required to bring drug to the market and the desire to do so more rapidly and well positioned. We're one of those new techniques, new abilities to accelerate that timeframe of getting into the market and I think we'll continue to benefit from that as we go forward in the future.

Cameron Donahue -- Partner and Regional Vice President

Thank you, Shawn. That appears to be all the questions today. I'll turn it back over to you for final comments.

Shawn O'Connor -- Chief Executive Officer

Very good. Well, I appreciate everyone's attention. Be safe everyone. And I look forward to -- yes, we are well through our first quarter. And I look forward to reporting to you very soon first quarter of fiscal year '21 results in January. Take care, everyone.

Cameron Donahue -- Partner and Regional Vice President

And this does conclude today's conference call and webinar. If you missed any part of today's presentation, the replay will be available at our website, www.simulations-plus.com. Thank you.

Duration: 57 minutes

Call participants:

Cameron Donahue -- Partner and Regional Vice President

Shawn O'Connor -- Chief Executive Officer

John R. Kneisel -- Chief Financial Officer

Curtis Scott -- Analyst

Matt Hewitt -- Craig-Hallum -- Analyst

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