Simulations Plus, Inc. Q1 FY2026 earnings call

• Delivered on first quarter top line guidance with revenue down 3% as expected. Adjusted EBITDA was $3.5 million and adjusted EPS was $0.13.
• Macro environment trends: global most favored nation pricing agreements moving forward, tariff threats subsided, biotech funding improving; FDA issued NAM guidelines and supported in silico methodologies.
• Services segment saw uptick in spending, with good performance in revenue and bookings, and acceleration in year-end spending which is a positive as services often precede software activity.
• Priorities for fiscal 2026 include advancing an integrated product ecosystem combining validated science, cloud-scale performance, and AI grounded in regulatory-grade modeling across products like GastroPlus, MonolixSuite, ADMET Predictor, and QSP platforms.

Total revenue for the first quarter decreased 3% to $18.4 million. Software revenue decreased 17%, representing 48% of total revenue. Discovery products (primarily ADMET Predictor) were 15% of software revenue in the quarter and 18% on a trailing 12-month basis. Development products (primarily GastroPlus and MonolixSuite) were 81% of software revenue in the quarter and 77% on a trailing 12-month basis. Clinical ops products (primarily proficiency) were 4% of software revenue in the quarter and 5% on a trailing 12-month basis. Services revenue increased 16%, representing 52% of total revenue. Development services (including biosimulation) represented 71% of services revenue in the quarter and 74% on a trailing 12-month basis. Commercialization services (including MedCom) represented 29% of services revenue in the quarter and 26% on a trailing 12-month basis. Total gross margin was 59%, with software gross margin at 84% and services gross margin at 36%.

• Fiscal 2026 guidance remains: total revenue between $79 million to $82 million, year-over-year revenue growth between 0% to 4%, software mix between 57% to 62%, adjusted EBITDA margin between 26% to 30% and adjusted diluted earnings per share between $1.03 to $1.10.
• Anticipates second quarter revenue to be approximately $21 million to $22 million.

• Market conditions and client consolidations impacting software revenue and renewal rates.
• QSP software license flow being lumpy due to perpetual license business.
• Impact of large pharma acquisitions on renewal rates and software licenses as smaller biotechs typically don't have large software licenses.

Q: Maybe first up, I was hoping we could get a little bit more color on some of the positive commentary you spoke to regarding most favored nations lower tariff risk, those types of things? And how that you see impacting budgets from your customers and whether or not you're anticipating a greater allocation of those R&D budgets towards modeling and simulation.

A: Sure, Matt. We just did our fourth quarter earnings call not that long ago, and we spoke to some of the events in the latter part of the calendar year '25 of agreements at some level in terms of most favored nation pricing and certainly, tariff talk as died down a bit. The U.K. agreement was put in place. So I think all of these things are starting to stabilize outlook for our clients, and we saw that begin to impact the discussions we had through the latter part of '25 as they were preparing budgets, so certainly a lot of activity and give us proposals, we want to put it in the budget for next year. And so that was a very positive impact. As an update here in January, we saw a pretty robust activity turning those proposals into contracts for next year. And, in some cases, accelerated requirements in terms of getting some of that work done before the year-end that budget flush that happens every year in the industry. Certainly took place this year, and that translated into a pretty robust service revenue delivery for us in our November and ending quarter. So certainly puts more wind in the sale in terms of optimism as we move into the calendar year of '26 that the constrained spending environment that we've operated in for the last number of years is starting to show some signs of opening up a bit.

Q: So Shawn, I know you mentioned that the regulator guidance doesn't reflect any mix changes from the prior guidance. But it seems like the environment has improved and that there's a lot of momentum and backlog here. Does the cadence of your guidance change, should we expect less extreme back-weighted guidance here based on this sort of momentum and this improved environment.

A: Well, there is a little backloaded when you look at it from a percentage growth perspective, from an absolute dollar perspective, it's not quite so backload. What do I mean by that? I mean we're pretty open in looking at our '26 versus '25 revenue streams. And we knew that on the software side, proficiency platform revenue, software revenue contribution was at its peak in the first and second quarter of '25, and its run rate trend line came down in the back half of '25. And while it moves forward positively, our first half of the year, year-over-year software growth is going to be impacted by proficiency contribution at a little lower level. The biosimulation software much, much better shape. You've got the dynamic that I just described in terms of the QSP perpetual license and they're having some impact, so on and so forth. So when we look at the software revenue flow on an absolute dollar basis, it kind of runs to the seasonality patterns of the past. But when you're looking at a year-over-year comp, given our profile of software revenue coming down in the back half of last year, 25 being at a higher level in the first half of the year, that overall year-over-year increase percentage is going to step up in the back half of the year as we get into a different comp situation.