Q1 2025 Earnings Summary
- Software revenue grew 41% year-over-year, including 18% organic growth, driven by significant uptake in the Monolix Suite, with a large pharma client committing 100% to PK Analytics. Additionally, there was substantial progress in QSP licenses, and the company saw 30% growth in the Asian market, reflecting a strong start to the year.
- The company has a robust services backlog with 90% realizable within a year and strong bookings activity in the first quarter. This indicates future revenue growth and supports a positive outlook for the services business in the second half of the year.
- Positive client engagement with large pharma companies showing strong commitment to expanding use of modeling and simulation. Discussions indicate potential increases in client budgets for 2025, suggesting increased demand for the company's products and services.
- Challenging Funding Environment and Unpredictable Client Activity: The company continues to face a challenging funding environment with cost constraints among its pharma and biotech clients. This has led to unpredictable client activity levels, making it difficult to forecast performance. Management noted that client engagement is "sporadic" and it's hard to predict the tone of customer meetings.
- Declines in Key Service Revenues and Ongoing Data Delays: Organic Services revenue declined by 9%, with notable decreases in PBPK Services (down 9%), CPP Services (down 6%), and QSP Services (down 14%). Additionally, the business experienced client-driven data delays that postponed the ramp-up of certain projects, and management does not expect these delays to be fully resolved, as they are an ongoing reality in drug development.
- Limited Visibility into Client Budgets and Potential Spending Delays: The company has limited visibility into client budgets for 2025. Management admitted, "we don't have visibility to that level" regarding whether client budgets are greater than last year. This uncertainty could lead to further delays in revenue recognition, with potential for some Service revenue being pushed into the back half of the year.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +30% (from US$14.5M to US$18.924M) | Total Revenue increased by about 30% YoY due to strong revenue growth driven by gains in both software (+41% YoY) and services (+19% YoY) segments, building on the prior period’s solid performance and expanded market opportunities in key regions. |
Software Segment Revenue | +41% (from US$7.589M to US$10.715M) | Software revenue grew 41% YoY as a result of robust performance across flagship products such as MonolixSuite and QSP, reflecting improved customer adoption and upselling opportunities that built upon previous period momentum. |
Services Revenue | +19% (from US$6.911M to US$8.209M) | Services revenue increased by 19% YoY driven by stronger bookings—especially in CPP and QSP services—even though earlier periods experienced some project ramp-up delays, which now appear to be resolving. |
Americas Revenue | +33% (from US$10.891M to US$14.469M) | Americas revenue surged 33% YoY as higher software and services performance, along with effective regional sales strategies, continued to drive growth compared to the prior period’s baseline. |
EMEA Revenue | +18% growth (approximate) | EMEA revenue grew by about 18% YoY, benefiting from global expansion efforts and market improvements compared to the previous period, although detailed drivers by region were less explicitly stated. |
Asia Pacific Revenue | +33% growth (approximate) | Asia Pacific revenue increased roughly 33% YoY in Q1 2025, reversing previous declines from FY 2024 (when it dropped 23%), likely due to renewed regional engagement and effective market penetration strategies. |
Operating Cash Flow | From US$+162K to US$(1,274)K | Operating cash flow turned negative in Q1 2025 versus a positive US$162K in Q1 2024. This shift is largely driven by a significant reduction in net income (from US$1,945K down to US$206K) and adverse working capital changes—particularly increases in accounts receivable and other liabilities. |
Cash and Cash Equivalents | -84% (from US$39,789K to US$6,187K) | Cash and cash equivalents dropped by approximately 84% YoY. The decline is attributed to major cash outflows for acquisitions, substantial investments in short-term investments, and dividend payments, contrasting sharply with the previous period’s balance. |
Net Income | Decrease from US$843K (Q4 2024) to US$206K (Q1 2025) | Net income fell significantly on a sequential basis, reflective of increased cost of revenues and operating expenses (despite revenue gains), which together eroded margins compared to the stronger performance in the prior quarter. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Total Revenue | FY 2025 | Expected to be between $90 million and $93 million | Expected to be between $90 million and $93 million | no change |
Year-over-Year Revenue Growth | FY 2025 | 28% to 33% | 28% to 33% | no change |
Software Mix | FY 2025 | 55% to 60% | 55% to 60% | no change |
Adjusted EBITDA Margin | FY 2025 | 31% to 33% | 31% to 33% | no change |
Adjusted Diluted Earnings Per Share | FY 2025 | $1.07 and $1.20 | $1.07 to $1.20 | no change |
ALI and MC Contribution | FY 2025 | no prior guidance | Expected to contribute between $15 million to $18 million | no prior guidance |
Second Fiscal Quarter Revenue | FY 2025 | no prior guidance | Approximately 24% of the fiscal year guidance range with a YoY growth rate of between 18% and 22% | no prior guidance |
Revenue Split for Full Year | FY 2025 | no prior guidance | Expected to be evenly split in the third and fourth quarters | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Software revenue growth | Previous quarters reported modest software revenue increases (e.g., 6% in Q4 2024; 12% in Q3 2024; 11% in Q2 2024) with mention of incremental MonolixSuite adoption, displacing competitors | Q1 2025 reported 41% YoY software revenue growth and 43% growth in MonolixSuite adoption, driven by large pharma and new customer upsells | Significantly improved performance with much stronger growth and adoption momentum |
Services backlog vs declining services revenue | Q2 2024 highlighted a robust services backlog with healthy revenue growth; Q3 2024 noted a strong backlog despite PBPK revenue delays; Q4 2024 showed strong services revenue but a lower backlog due to delayed contracts | Q1 2025 reported a robust $17.3 million backlog (22% sequential increase) alongside an organic decline in services revenue due to client-driven data delays | Recurring robust backlog paired with ongoing short-term revenue challenges |
Asian market performance | Q2–Q4 2024 consistently noted regional softness or lagging growth (impact of pullbacks in China and overall regional challenges) | Q1 2025 marked a turnaround with 30% growth in Asia, led by strong performance from Japan, India, and Korea, despite ongoing pressures in China | Shift from regional softness to strong, diversified growth in Asia |
Client engagement & pharma budget uncertainty | Q2 2024 and Q3 2024 reported cautious client engagement with mixed spending patterns; Q4 2024 mentioned positive initial 2025 discussions despite underlying budget constraints | Q1 2025 highlighted robust client engagement with active participation in industry conferences and ongoing pharmaceutical budget uncertainty, as clients continue planning 2025 budgets | Continued active engagement with cautious optimism amid persistent budget challenges |
Evolving funding environment & biotech funding trends | Q2 2024 described improving biotech funding and positive trends for companies with drugs in the clinic; Q3 2024 and Q4 2024 stressed a constrained, cost‐driven environment with mixed signals | Q1 2025 reiterated a challenging funding and cost-constrained environment with marginal improvements compared to the past two years and evolving focus areas such as oncology and obesity | Ongoing challenges with slight improvements, reflecting an environment in gradual transition |
Pro-ficiency acquisition & integration impact | Q3 2024 noted the acquisition would be accretive in FY2025 with temporary margin pressure; Q4 2024 emphasized long-term revenue contribution despite lower margins; Q2 2024 provided no details | Q1 2025 reported negative impacts on EPS and margins from the Pro-ficiency integration (due to amortization of capitalized costs) while adding expected long-term growth opportunities | Short-term margin and EPS pressure from integration costs with anticipated long-term benefits |
Adjusted EBITDA margin targets & cost pressures | Q2 2024 showed steady adjusted EBITDA margins around 39% with cost pressures linked to acquisitions and compensation; Q3 2024 and Q4 2024 detailed staffing issues and overstaffing impacting margins | Q1 2025 reaffirmed guidance of 31%-33% adjusted EBITDA margin and acknowledged ongoing cost pressures in a challenging funding environment, with no explicit staffing issues mentioned | Persistent cost pressures with maintained guidance despite some operational adjustments |
Data delays & operational challenges | Q2 2024 described volatility from start-and-stop drug programs and data delivery disruptions; Q3 2024 and Q4 2024 pointed to source data delays in PBPK projects and operational delays affecting project timelines | Q1 2025 continued to see data delays as a persistent challenge that postponed project ramp-ups and contributed to a 9% organic decline in services revenue | Consistently recurring operational challenges that continue to impact revenue timing |
ADMET Predictor & AI-enabled biosimulation adoption | Q2 2024 emphasized adoption of ADMET Predictor with detailed discussion on AI-enabled biosimulation integration; Q3 2024 mentioned solid ADMET Predictor growth and Q4 2024 announced release updates (version 12) and client base expansion | Q1 2025 focused on the 15% revenue growth in the cheminformatics business driven by ADMET Predictor, with no specific update on AI-enabled biosimulation | Steady strength in ADMET Predictor; AI-enabled biosimulation received less emphasis recently |
Customer churn & fee retention | Q2 2024 reported strong fee retention (around 94%) despite minor renewal timing slips; Q3 2024 and Q4 2024 noted high renewal rates with some consolidation and timing issues | Q1 2025 showed stable software customer renewal rates (95% based on fees, 83% based on accounts) consistent with historical performance | Stable retention and low churn, maintaining confidence in customer stickiness |
Downward EPS guidance adjustments due to acquisition expenses | Q3 2024 noted downward EPS guidance adjustments because of higher-than-expected acquisition-related transaction costs; Q4 2024 discussed lower-than-expected transaction add-backs impacting FY2024 EPS | Q1 2025 did not mention any downward EPS guidance adjustments related to acquisition expenses, with reaffirmed guidance for FY2025 | Reduction in emphasis on EPS downward adjustments as integration seems to be stabilizing |
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Software Revenue Growth
Q: Why the strong software revenue growth this quarter?
A: Software revenue grew 41% year-over-year, with 18% organic growth. This was driven by significant uptake in our CPP and Monolix platforms, expansion of existing licenses, new client acquisitions, and a large pharma's full commitment to our PK Analytics. We also saw significant progress in our QSP area, with major license activity in two therapeutic areas. -
Major Pharma Commitment
Q: Tell us about the major pharma commitment's impact.
A: A large pharma client committed 100% to using our PK Analytics, marking a significant step forward. This commitment was anticipated after extensive work by our business development team and positively impacted the quarter. -
Services Revenue and Project Delays
Q: How are project delays affecting services revenue?
A: Temporary postponements due to budget constraints and data delays impacted services revenue this quarter. However, bookings were robust, and our backlog is now 90% realizable within a year. We expect no change in our outlook for the services business in the coming quarters. -
Contribution from Pro-ficiency
Q: How did Pro-ficiency perform this quarter?
A: Pro-ficiency's two business units contributed $1.8 million in software revenue and $1.9 million in services revenue. This performance aligns with our expectations and supports our $15 million to $18 million sales target. Integration is progressing well, and we're exploring cross-selling opportunities. -
GastroPlus Revenue and Asia Sales
Q: What was GastroPlus software revenue growth and Asia performance?
A: GastroPlus software revenue grew 4% year-over-year. We saw good results in Asia, especially in Japan, our largest contributor in the region. China remains a smaller portion of our Asian market, with sales under pressure. -
Budget Constraints and Market Rebound
Q: What's the outlook given budget constraints and rebound timeline?
A: Clients are committed to expanding their use of modeling and simulation, recognizing its value in improving ROI. While some deals are still being finalized, we're cautiously optimistic about a better environment than last year but will monitor how it unfolds. -
Back Half Ramp and Seasonality
Q: Should we expect revenue to ramp in the back half?
A: We do see some seasonality, with software renewals impacting quarterly results. While project activities may push some service revenue to the back half, we're not anticipating a significant shift. We've guided to 24% of revenue in Q2, compared to 26% in past years. -
Macro Environment Variance
Q: Are there patterns in client activity levels?
A: Client activity varies widely, with no clear patterns. Companies in stronger financial positions are more aggressive, and areas like oncology are experiencing higher activity levels. -
Organic Growth Rate vs. Market
Q: How does your organic growth compare to the market?
A: Our organic growth in the first quarter was 5–6%, aligning with our expectations. We believe our peers are experiencing single-digit growth, but we'll need to await their reports to confirm.
Research analysts covering Simulations Plus.