Good afternoon. It is Monday, April 10, 2017 and on behalf of Simulations Plus, I welcome you to our Second Quarter and Fiscal Year 2017 Financial Results Conference Call and Webinar. Presenting this afternoon will be Company President Ted Grasela; Vice President of Marketing and sales, John DiBella; and Chief Financial Officer, John Kneisel. Also joining us from Auburn, Alabama is Chairman and CEO, Walt Woltosz. An opportunity to ask questions will follow today's presentation. You may send your written question using the questions pane on your control panel or you may use the hand-raising feature on your control panel to ask your question directly. Please be sure to enter the unique audio PIN displayed when you joined the call. This call is being recorded for playback at our website, www.simulations-plus.com. Before we begin today's presentation, I'll read our Safe Harbor statements. 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. It is now my pleasure to introduce John DiBella, Vice President of Marketing and Sales for Simulations Plus.

Thanks a lot, Renee, and hi everyone. Thanks for taking time out of your busy schedules today or may be away from your children's spring break. To learn a little bit more about our financial performance in Q2 and the first half of 2017. John, Ted and I will discuss the details as we go forward, but I wanted to set the stage first with a few highlights. As a brief reminder, we provide modeling in Simulations Solutions both software and consulting support for the pharma, biotech, chemicals and consumer goods markets. Our solutions pan the earlier stages of drug discovery, when chemists first begin sketching molecules and progress through preclinical development, safety research, Phase 2 and 3 clinical trials and post patent to support generic drug companies. In Q2 our revenues were up 11% to a record second quarter $5.7 million versus the same time period in 2016. Our net income increased a little over 4% to 1.2 million. Our software renewal rates were within their historical norms and we added 20 new software clients in Q2, which I’ll talk a little bit more about coming up. To meet this current demand for our consulting expertise and technology, we interviewed and hired several new modelers and scientist to the Simulations Plus family with most of them starting in this quarter. For the first six months of 2017, our revenues increased a little over 11% to $11.12 million and we saw nice trickledown effect on that income, which increased 14%. Diluted earnings per share is up a little over 12% to $0.15, and we have added 43 new software clients in the first half of the year. Our relationships with regulatory agencies remain strong as the U.S. and China FDA added licenses to our software in the quarter. We also…

Thank you, John. This quarter, I'll go with the first quarter first and then we'll cover the next six months or the six month period time. The consolidated net revenues were up 10.5% or 540,000 to 5.7 million in the second quarter this year from 5.16 the prior year. The net increase was due to $394,000 increase in revenues at our Lancaster division, which represented our 10.8% increase over 2016. We saw an increase of a 148 or 9.7 or 10% increase in our Buffalo division to 1.6 million in 2017 from 1.5 in 2016. Consolidated software and software related revenues were up 297,000 or 8.4% while consolidated consulting and our analytical study revenues increased 245,000 or 15% over the prior year. Gross profit increased 250,000 or 6.5% to 4.15 million from 3.9 million the prior year. Our Lancaster division accounted for 256,000 of the increase which came mainly from software licenses and study revenues while Buffalo remained basically constant from the prior year. Consolidated gross profit as a percentage of revenues decreased 2.3% this period from last year. This decrease came mainly from increased labor costs. Those areas were increased employee bonuses declared by the Board of Directors based on the higher earnings in 2016, and then the associated costs with associated cost of labor related to increased steady revenues and contracts and some increased training programs we ran this quarter that we didn't run the prior to year. We also saw an increase in software amortization this year as we did some releases during the period, which increased labor -- amortization cost. And at our Buffalo subsidiary, we incurred $65,000 worth of direct contracts labor expenses or labor-related expenses for our large contract there, which had about a 4% impact on their divisional gross profits for the quarter,…

Okay. Thank you, John. In case we have anybody new to the Company online today, what I'm going to do here first is just briefly describe all of our solutions and where they fit in the research and development process. In a nutshell, we offer model-driven end-to-end solutions, which span from early discovery through clinical development and regulatory filings. Our cheminformatics software, which consists of the ADMET Predictor, MedChem Studio and MedChem Designer platforms on the left, allow research scientists to design new compounds and virtually screen them across the spectrum of properties, really helping to prioritize testing as we go downstream. The Simulation software consisting of the flagship GastoPlus product, along with DDDPlus, MembranePlus and the PKPLus platforms, help scientists model and predict complex in vitro experiments and, ultimately, the in vivo exposure that's likely to be seen in animals and humans. And KIWI is a cloud based validated platform for managing and communicating pharmacometric projects and results once we get into the clinic. These software tools are complemented by a team of experts who provide model driven consulting support on a project by project basis. Next slide. Diving a little bit deeper into the products themselves. Our software development teams have been working very hard on new releases of all products. The new version of GastroPlus, the flagship which is responsible for about 65% of the software revenue, was released just last week. This version includes a new optional add-on feature for intramuscular dosing, which was developed through one of the funded collaborations with the FDA, and also enhancements to our recently released Biologics Module, which we really expect will help deliver more sales of that feature as we go forward. ADMET Predictor 8.1 was released in January, and the performance improvements made especially when working on large…

Thanks very much, John. I'd like to talk a little bit about what's been going on here in Buffalo in terms of consulting services and our marketing activities and also where we are with KIWI. So, we continue to realize the strategic and synergistic benefits of the acquisition and we have really great relationships and activities going on between our clients, our scientists in Lancaster and our scientists in Buffalo. And that's evidenced by the record first quarter that we had. Those strong collaborations, I can't emphasize enough that one of the reasons why clients are responding to it is that we're really showing them new ways of using modeling and simulation to get at issues that have been problematic for our clients. And so they're beginning to see new ways in which to use the software to address those issues. And the reason why we focus -- one of the reasons why we focus on these consulting projects, is because we're looking to shape management and regulatory decision-making processes by virtue of delivering these results at the time of a regulatory review. And these projects also help drive additional consulting because we develop really good relationships with our clients. But then also, we hope that they will drive software sales as clients see the value of the work that we do and bring those software products in-house to expand their use. Next slide, please. So far in fiscal year 2017, we're working with a total of 25 companies on 38 different drugs and under the umbrella of 65 different projects. We've engaged with six new companies in fiscal year 2017, which brought us 33 new projects. 15 projects were expanded in scope during this period. Three projects were reduced in scope because the drug wasn't looking like it was…

Thank you, Ted. So just to summarize, overall, top line revenue growth for the quarter and first half of 2017 were up 11%, and we are presenting this from different rooms, but I can see John K. smiling with my roundup skills. Also, net income for the first six months increased nearly 14%. This growth is driven by strong performances across the Company, across divisions, split between software and consulting services, as we're really in a nice position here to capitalize on the interest from regulatory agencies and utilizing modeling and simulation in clinical pharmacology, in safety, research and, of course, even earlier. We're also making really nice progress on the five year, nearly $5 million contract with a large research foundation, as Ted just discussed, which offers potential for additional such contracts with groups. And finally, we believe our company is firmly entrenched as a leading provider of modeling and simulation solutions. And we look forward to continuing to provide innovative new approaches to meet this growing demand. Thank you so much for your attention. And what I'd like to do now is throw it back to our moderator, Renee, to handle the question and answers portion of today's call.

Thank you, John. Howard Halpern has sent a number of questions, some of these, I think, you've touched on in your presentation, but nonetheless. His first question is, what is the potential both near and long term for your recently announced distributor agreement in South Korea with Quantum Bio Solutions?

Yes. So as mentioned earlier, we have today, around six organizations that license our technology in Korea. We really don't work with anybody on a consulting basis yet. Fortunately, Quantum Bio Solutions, they're a group that's been around now for well over six years, and they were founded by a professor at Korea University, who has a really strong reputation in utilizing computational tools for drug discovery but also has some experience using it a little bit further down the line with PK modeling as well. He's got a very strong network as does the rest of his team and group, and we've discussed what the potential market could be for us over in Korea. And we've identified around 50 to 60 companies that could be viable candidates for some form of our solution, whether it's licensing software, whether it's outsourcing some work to our consulting groups. So once we get these folks at Quantum Bio Solutions up and trained with our software, I think we'll see some pretty nice results coming over there in a relatively short period of time. We'll be making a visit to Korea in July. We've already a workshop scheduled with our long-term university partner. So we're going to be going over there, hosting the workshop, and Quantum is already working on setting up a number of client visits for us to make as well.

And Howard's next question concerns the PKPlus software offering. He asked if it's gaining customer acceptance. And what can PKPlus contribute in terms of units sold over the next 2 years?

Okay. The first question, it is gaining customer acceptance. First six months of the launch of PKPlus, we had around a dozen to 15 companies now, I think, licensing the technology. The encouraging thing is that a large chunk of those companies are CROs, so contract research organizations that are offering PK modeling services to their clients and have found PKPLus to be a viable tool for them. Well, I think we're really excited about this next release. So we've gotten a lot of feedback from companies who have evaluated the software, who have really appreciated the workflow, but identified a few things that were missing that prevented them from moving forward with licensing. And I think we're going to be addressing a good chunk of those items in this next version. And I would expect to see a nice performance here coming up closing out, hopefully 2017 and going into fiscal year 2018. Realistically, I would expect to see PKPLus contributing somewhere around maybe 10% to 15% of the total units -- license units that are sold over the next two years.

Okay. Thank you. Howard's next question concerns the new customers. With 43 new customers in the first half of fiscal '17, can you maintain or exceed that pace in the second half of this fiscal year?

It depends. I think that getting GastroPlus 9.5 out last week is going to be a big help. That's our flagship product, and we had gone nearly 2 years between releases of GastroPlus. People were getting a little antsy, and we've come out with a new version that has really got something for everybody. And so I think we're going to see a lot of people pulling the trigger on some new GastroPlus licenses. I think the response to the ADMET Predictor release in January has been very positive, and hopefully, we'll see some new customers signing up for that product. And then hopefully, we'll see continued sales momentum maintained with PKPLus as well, especially when that new version comes out. 43 new customers in the first half of the year is a pretty good pace. So I can't really say whether or not we'll maintain or exceed that for the second half of the year. But I would expect a nice number of new customers signing up for the technology, especially -- sorry, just enclosed for this answer, companies may be outside of our core pharma biotech markets. That's where I'm really excited. We've had a really nice response to the solutions that we offer at the Society of Toxicology meeting in Baltimore last month. And companies that you probably wouldn't expect to be potential customers for us have really expressed a strong interest in learning more, so I think that expansion into some of these newer markets are going to be exciting to keep track of.

Okay. Thank you, John. Howard's next questions, I think, are for John K. His first is, the gross margin decreased to 72.8% from 75.5% in the second quarter of fiscal '16. Will year-over-year margin pressure continue in the second half of fiscal '17?

Well, you're looking at the quarterly margin on this question, and there were a couple of items that hit this quarter that are potentially repeatable, any kind of direct cost on a contract that hit can hit again and will, at some point or another, catch in the quarter. But it's not really, they're not really designed in a quarter or we know when they're going to come in. And then again, with some of the salary issues that hit in this quarter, those are specific to the second quarter of the year, especially bonuses and some of those items. So some of those will carry over, but in particular, I don't anticipate that they will. Again, it also depends on how sales go because sales affect the margins, Howard. So it's a little hard to predict how it will carry forward into the year, but I would assume that our normal margins would hold going forward, especially with, if normal sales patterns hold as I would expect. Hopefully, that will answer your questions, a little hard because it's really speculative. There's a lot of moving parts, depending on when contracts close on consulting projects and changes in personnel and things like that. And do you have another question? Renee?

One last question Howard asks, if you have any feel on what the full year tax rate should approximate.

Yes. Howard, I tend to always use about a 33% rate. The run rate's probably a little bit lower right now, but I still think about a 33% rate is the better rate to use for the year.

Okay. Well, I don't see any further questions. I think that's about it, John. Did you want to wrap up? Or Walt, did you want to say anything out there, Walt?

Well, I think it's been very nice to be sitting here on the sidelines and watch the younger generation doing all of this, but I think they've done a very good job. The continued steady growth that you can see from the bar charts, especially quarter-over-quarter or year-after-year, they just seemed to be on a very steady solid trajectory, and I don't see any reason why that should change. John D. mentioned that education is a major key to expanding the market. It's something that we've thought about for many years. And our workshops are being, are serving us well to educate more and more people on the benefits of model-based simulation and modeling to use for drug development. I'm very pleased with how things are going and look forward to the next quarter call.

Thank you, Walt. We actually do have 1 final question that just came in, and the question is, can you, what is the change in the headcount in the quarter, I guess, employee?

I think right now, I think we're -- I guess it depends on the exact timing what the quarter is. I think we were up six people as of right now or as of the end of the quarter, we will be, but I'm going to go back and recheck it. It's been a moving target for a little bit. I got to go relook at the number. Sorry about that. I wish I knew the exact number offhand right now.

Okay. Very good. Well, I think that concludes the call today. There is one final announcement, on May 17, we'll be presenting at the Needham Emerging Technology Conference taking place at the Westin Grand Central Hotel in New York City, and we hope to meet some of you there. So with that, we conclude today's conference call. If you missed any part of today's presentation, the replay will be available at our website, www.simulations-plus.com. Please do check out that website if you haven't seen it lately. It's really dynamic, very exciting, has a lot of excellent information. Thank you to all of you for joining us today.