Christine Rains

Christine Rains asked for context on the software renewal rate remaining below previous years on a fee basis, the factors weighing on renewals, and expectations for its return to the 90% range. She also sought details on the EBITDA margin guide, including gross margin breakdown and cadence for fiscal 2026.

Answer

CEO Shawn O'Connor attributed the lower renewal rate to impactful consolidations and increased client scrutiny of module configurations, expecting improvement as scrutiny lessens and higher price increases take effect. He explained that the EBITDA margin guide reflects the benefit of the reduction in force but limited leverage from 0-4% top-line growth, with a 35% target requiring higher revenue growth.

Christine Rains inquired about the software renewal rate remaining below previous years on a fee basis, the factors weighing on renewals, and the expectation for a return to the 90% ballpark, as well as what is baked into the EBITDA margin guide for gross margin and the margin cadence for fiscal 2026.

Answer

Shawn O'Connor (CEO, Simulations Plus) attributed the lower software renewal rate to impactful consolidations and increased client scrutiny of module configurations, expecting improvement as these factors diminish and a more aggressive price increase takes effect. He explained that the $4 million reduction in force benefits fiscal 2026, but 0-4% top-line growth limits EBITDA leverage against rising expenses, with greater improvement requiring higher top-line growth.

Christine Rains of William Blair sought more clarity on the Q4 adjusted EBITDA margin decline, the timeline to return to the low-30% range, and the implied Q4 revenue mix between software and services.

Answer

CEO Shawn O’Connor and CFO Will Frederick clarified the Q4 margin drop is due to lower revenue against a largely fixed cost base, with some higher marketing expenses. O'Connor stated the long-term 35% adjusted EBITDA target is unchanged but the timeline is uncertain. He also corrected the premise of the final question, stating the Q4 revenue decline is driven primarily by services, not software.

Christine Rains, on behalf of Max Smock at William Blair, asked about services revenue visibility for the second half of the year, the potential impact of FDA turnover on biosimulation adoption, and the high-level outlook for fiscal 2026 amid macro headwinds.

Answer

Executive William Frederick stated that backlog characteristics are consistent with the past, where about 90% is typically realizable within 12 months, but did not provide a specific H2 coverage figure. Executive Shawn O'Connor acknowledged the disruption at the FDA but believes it will not slow biosimulation adoption, as the process is largely fee-funded and industry adoption is driven by efficiency gains. For fiscal 2026, O'Connor indicated the outlook is highly dependent on the broader market environment improving, though he expects the software business to remain resilient.

Christine Rains, on for Max Smock, asked for an update on conversations with large pharma regarding their 2025 budgets and whether demand has bottomed out. She also requested the revenue and margin contribution from the Pro-ficiency acquisition and more details on the client-driven data delays impacting the Services segment.

Answer

Executive Shawn O'Connor expressed cautious optimism, noting strong client commitment to modeling and simulation but acknowledged that budget rollouts are gradual. He believes the environment will be somewhat better than last year. Executive William Frederick specified the quarterly contribution from the acquired business units was approximately $1.8 million in Software and $1.9 million in Services. O'Connor added that data delays are an ongoing reality in drug development due to clients' 'fail fast' strategies and not a one-time issue.

Christine Rains asked if ICON plc is still observing strength in early-phase work, as previously noted, or if there has been a shift towards late-phase work.

Answer

CEO Barry Balfe confirmed continued strong activity in the early-phase business, reporting double-digit growth on both a year-over-year and sequential basis, with an intention to sustain and improve this growth.

Christine Rains of William Blair & Company asked for quantification on delays for new clinical projects, referencing a figure from the previous quarter and asking if the timeline from RFP to decision had improved.

Answer

CEO & Chairman Ari Bousbib stated that the decision-making environment remains 'more or less similar,' with timelines still 'more elongated than usual.' He emphasized that IQVIA's improved booking performance was not due to a broad market recovery but rather the success of its proactive 'see more, win more' strategy, which has been extremely successful in generating and winning opportunities despite the challenging environment.

Speaking for Max Smock, Christine Rains asked about the current customer penetration for preclinical applications versus clinical, planned investments in preclinical offerings, and whether the Non-animal Navigator is a repackaging of existing tools or a new solution.

Answer

CFO John Gallagher stated that while specific figures aren't disclosed, the majority of revenue has historically been from the clinical phase. CEO William Feehery described Non-animal Navigator as a combination of aggressively developed QSP technology with drug development and regulatory strategists to create a comprehensive solution. Gallagher added that the late 2023 acquisition of Applied BioMath significantly strengthened their market-leading QSP position, a key component of the offering.

Christine Rains, on for Max Smock, asked about the drivers behind the recent downtick in the software net retention rate and sought clarification on the calculation and drivers for the expected acceleration in 2025 organic growth.

Answer

CFO John Gallagher confirmed the Q4 software net retention rate was 106% and attributed the dip to the spending patterns of Tier 1 customers, including slower decision-making and portfolio reprioritization. He clarified that the 2025 organic growth guidance is 4% to 6%, with the acceleration from 2024's 2% rate primarily driven by the expectation that the regulatory services business will be flat to low-single-digit growth, compared to its decline in 2024.