Simulations Plus, Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Year-End Performance: Closed fiscal 2025 with 13% revenue growth, 8% adjusted EBITDA growth, and 8% adjusted EPS growth. Completed transition to a unified operating model aligning product, technology, R&D, consulting, and business development.
• Market Challenges: Faced external challenges with client budget pressures due to pharma headwinds like tariffs and MFN pricing. Saw early signs of stabilization in 2026 with large pharma pricing visibility and modest biotech funding improvement.
• Biosimulation Trend: Biosimulation is becoming the backbone of R&D operations, with demand for faster cycle times, interoperability, and AI-assisted workflows. Simulations Plus is building an integrated product ecosystem combining validated science, cloud-scale performance, and AI.
• Fiscal 2026 Strategy: Focus on an integrated product ecosystem across products like GastroPlus, MonolixSuite, etc., with investment in scientific engines, a connected ecosystem, and AI-driven services to support discovery, development, clinical ops, and commercialization.

Segment Performance

• Software Revenue: Fourth quarter software revenue decreased 9% to $17.5M * 0.52 = $9.1M (52% of total revenue). Fiscal year software revenue increased 12% to $79.2M * 0.58 = $45.9M (58% of total revenue). Specific products: ADMET Predictor declined 10% in Q4 and grew 5% for the fiscal year; GastroPlus declined 3% in Q4 and grew 1% for the fiscal year; MonolixSuite grew 3% in Q4 and 14% for the fiscal year; QSP/QST solutions grew 22% in Q4 and 26% for the fiscal year; Pro-ficiency declined 63% in Q4 but grew 206% for the fiscal year.
• Services Revenue: Fourth quarter services revenue decreased 3% to $17.5M * 0.48 = $8.4M (48% of total revenue). Fiscal year services revenue increased 15% to $79.2M * 0.42 = $33.3M (42% of total revenue). Development services (biosimulations) were 77% of services revenue in Q4 and 76% for the fiscal year; Commercialization services (Med Comm) were 23% of services revenue in Q4 and 24% for the fiscal year. Specific services: PBPK services declined 10% in Q4 and 14% for the fiscal year; QSP services declined 50% in Q4 and 26% for the fiscal year; PK/PD services grew 18% in Q4 and 5% for the fiscal year; Med Comm services grew 70% in Q4 and 622% for the fiscal year.

Guidance

• Fiscal 2026 Outlook: Total revenue expected between $79M to $82M (0% to 4% year-over-year growth), software mix 57% to 62%, adjusted EBITDA margin 26% to 30%, and adjusted diluted EPS $1.03 to $1.10. First quarter revenue is anticipated to be approximately 3% to 5% lower than the same period last year. The guidance assumes a stable operating environment, but anticipates responding to improved market conditions and increased client spending.

Risks

• Market Volatility: Continued uncertainty in the external environment, including potential client budget pressures and program cancellations that could impact revenue.
• Client Consolidations: Impact on software renewals and revenue due to client consolidations and scrutiny of module configurations within client budgets.
• Biotech Funding Uncertainty: Dependence on biotech funding recovery and its impact on software and consulting revenue, as biotech funding trends can influence program timelines and service demand.

Question and Answer

• Q: Jeff Garro asks about demand environment trends, RFP volumes, pipeline development, and SLP win rate.

A: Shawn O'Connor discusses biotech funding uptick, large pharma activity, and budgeting momentum, noting positive discussions with customers and ongoing proposal and budgeting activity.

• Q: Matt Hewitt asks about large pharma caution beyond MFN pricing and tariffs.

A: Shawn O'Connor mentions client-specific factors and budgeting cycles, stating that while there are still cautious elements, budgeting for 2026 shows momentum.

• Q: Scott Schoenhaus asks about guidance changes and biotech end market recovery.

A: Shawn O'Connor discusses guidance stability and the impact of biotech funding on software and consulting revenue, noting no significant changes to guidance assumptions.

• Q: Christine Rains asks about renewals and EBIT margin guide.

A: Shawn O'Connor talks about renewal rates impacted by consolidations and price increases, and EBITDA margin expectations considering seasonality and expense factors.

• Q: David Larsen asks about Pro-ficiency asset and 1Q revenue guide.

A: Shawn O'Connor discusses Pro-ficiency revenue components (software vs. services) and revenue tracking, noting that 1Q revenue is tracking to guidance with seasonality factors.

• Q: Constantine Davides asks about 2026 guidance and balance sheet.

A: Shawn O'Connor talks about renewal trends and cash flow, stating that cash flow is robust and the company remains interested in acquisitions in core markets and beyond.

• Q: Brendan Smith asks about pricing flexibility and AI rollout.

A: Shawn O'Connor discusses pricing strategies, including more aggressive price increases tied to AI and cloud capabilities, and how pricing is baked into guidance but faces market competition.