Simulations Plus, Inc. Q2 FY2025 earnings call

• Macro environment: Customers cautious, cost conscious. Software business steady growth. Services bookings strong but project starts slow.
• Software segment: Strong growth, renewal rates at historical levels, QSP led growth with atopic dermatitis model. CHEM and CPP also grew.
• Services segment: Revenue up 34%, backlog $20.4 million.
• Financials: Adjusted EBITDA $6.6 million, effective tax rate 12%, net income $3.1 million.
• Acquisitions: Pro-ficiency rebranded ALI training platform. Near-term priorities: Ramp up ALI and MC, cross-selling, drive adjusted EBITDA margin to 35%-40%.

Total revenue increased 23% to $22.4 million. Software revenue grew 16% (60% of total revenue), with QSP up 89%, CHEM up 8%, CPP up 9%, and PBPK up 1%. Services revenue grew 34% (40% of total revenue), led by CPP and MC. Software revenue contributions: GastroPlus 46%, MonolixSuite 23%, ADMET Predictor 17%, etc. Services revenue by business unit: CPP 39%, MC 25%, QSP 19%, PBPK 17%.

• Fiscal 2025 total revenue expected $90M-$93M, ALI and MC contribute $15M-$18M. Year-over-year growth 28%-33%.
• Third quarter revenue expected ~25% of FY guidance, 21%-25% y-o-y growth.
• Fourth quarter expected sequential revenue step up. Guidance not including future acquisitions. Near-term priorities include ramping ALI/MC, cross-selling, and achieving adjusted EBITDA margin target.

• Minimal risk from federal cost cutting measures on NIH and academic funding as no current exposure.
• Tariff implications on pharma businesses with global operations.
• Client spending cautiousness potentially delaying project starts.

Q: Talk about software organic revenue growth and fee renewal rate decline.

A: Software organic growth 8% excluding Pro-ficiency. Renewal rate down to 90% due to one large account renewed post-quarter.

Q: Reconcile software growth with clients slow on projects but good bookings.

A: Software licensing provides infrastructure; clients cautious on spending but maintain infrastructure. Bookings for services are strong but projects scheduled later.

Q: Color on services side, Pro-ficiency, cross-selling.

A: Pro-ficiency and Medical Communications contribution good. Cross-selling opportunities exist with existing clients.

Q: Pipeline and cross-selling for Pro-ficiency, $5M win.

A: $5M win adds to MC contribution but doesn't change ALI/MC guidance. Pipeline has activity; cross-selling focuses on filling opportunities.

Q: Services visibility, second half revenue.

A: Backlog ~90% realizable in 12 months, similar to past.

Q: FDA layoffs impact on biosimulation adoption.

A: Disruptive but not a big speed bump for biosimulation adoption.

Q: Fiscal 2026 outlook.

A: Market environment impact key; software insulated, service side depends on market.

Q: PBPK partnership with Enabling Technologies Consortium.

A: Project extends 12+ months, consortium helps advance GastroPlus product.

Q: Pro-ficiency seasonality, QSP growth.

A: Pro-ficiency seasonality expected to pick up. QSP growth from discrete large licenses, with atopic dermatitis being one, others in disease models.