Executive Summary

Q3 FY2025 revenue was $20.4M (+10% YoY) with software +6% to $12.6M (62% mix) and services +17% to $7.7M (38% mix); GAAP diluted EPS was $(3.35) driven by a one-time non-cash impairment of $77.2M, while adjusted diluted EPS rose to $0.45 from $0.27 YoY .
Management cut FY2025 guidance materially: revenue lowered to $76–$80M (from $90–$93M), adjusted EBITDA margin to 23–27% (from 31–33%), and adjusted diluted EPS to $0.93–$1.06 (from $1.07–$1.20) due to service project delays/cancellation (~$2M impact) and softer renewals amid client consolidations/site closures .
Operating results ex-impairment were resilient: adjusted EBITDA margin expanded to 37% vs 30% YoY; however total gross margin fell to 64% (vs 71% YoY) on higher cost of revenues (+$2M) and services mix .
Near-term stock narrative: negative catalysts from the impairment and guidance reset; potential medium-term positives from AI-enabled product upgrades (GastroPlus AI copilot, Orchestrator automation, GastroPlusGPT) and backlog growth to $20.7M (91% expected conversion within 12 months) .

What Went Well and What Went Wrong

What Went Well

Software growth and mix resilience: software revenue +6% YoY to $12.6M (62% of total) led by ADMET Predictor with modest gains in GastroPlus and MonolixSuite; adjusted diluted EPS rose to $0.45 and adjusted EBITDA to $7.4M (37% margin) .
Backlog strengthened: services backlog reached $20.7M (up from $20.4M in Q2 and $15.7M YoY), with management noting “over 91% expected to be converted to revenue within 12 months” .
Strategic AI initiatives: “we are rolling out a series of new AI-driven initiatives across our product lines… GastroPlus release will include AssessmentsPlus, Orchestrator, and GastroPlusGPT” (CEO) .

What Went Wrong

Impairment and GAAP loss: non-cash impairment of $77.2M drove a GAAP net loss of $67.3M and diluted EPS of $(3.35), overshadowing operational improvement .
Services pressure and cancellations: services bookings slowed; a significant client canceled two programs (near-term revenue impact ~$2M), pushing revenue out of Q3/Q4 and contributing to guidance reduction .
Lower renewal rates amid consolidations/site closures: software renewal rates fell to 84% (fees) and 71% (accounts), driven by GastroPlus and Monolix client consolidations/site closures, pressuring software momentum and gross margin .

Financial Results

Consolidated Performance vs Prior Year and Prior Quarter

Metric	Q3 2024	Q2 2025	Q3 2025
Revenue ($USD Millions)	$18.544	$22.432	$20.363
GAAP Diluted EPS ($)	$0.15	$0.15	$(3.35)
Adjusted Diluted EPS ($)	$0.27	$0.31	$0.45
Total Gross Margin %	71.5%	58.5%	64.0%
Adjusted EBITDA ($M)	$5.586	$6.578	$7.437
Adjusted EBITDA Margin %	30%	29%	37%
Loss/Income from Operations ($M)	$1.880	$2.712	$(74.226)

Notes:

Q3 FY2025 GAAP loss reflects impairment; underlying adjusted metrics improved YoY .

Segment Revenue Breakdown (Software vs Services)

Metric	Q3 2024	Q2 2025	Q3 2025
Software Revenue ($USD Millions)	$11.908	$13.484	$12.615
Services Revenue ($USD Millions)	$6.636	$8.948	$7.748
Mix: Software % of Total	64%	60%	62%
Mix: Services % of Total	36%	40%	38%

Software Product Mix (as % of Software Revenue)

Product	Q3 2025
GastroPlus (PBPK)	56%
ADMET Predictor (Cheminformatics)	20%
MonolixSuite (PK/PD)	17%
Pro-ficiency (Clinical Ops)	3%
QSP/QST Software	4%

Services Solution Mix (as % of Services Revenue)

Solution	Q3 2025
PK/PD Services	38%
MedComm Services	26%
QSP/QST Services	19%
PBPK Services	18%

KPIs

KPI	Q3 2024	Q3 2025
Software Customer Renewal Rate (Fees)	93%	84%
Software Customer Renewal Rate (Accounts)	86%	71%
Avg. Software Revenue per Customer (Quarter, $000s)	$97	$96
Services Backlog ($USD Millions)	$15.7	$20.7
Total Services Projects (Quarter)	181	202

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Total Revenue ($USD Millions)	FY2025	$90–$93M	$76–$80M	Lowered
Revenue Growth (%)	FY2025	28–33%	9–14%	Lowered
Software Revenue Mix (%)	FY2025	55–60%	55–60%	Maintained
Adjusted EBITDA Margin (%)	FY2025	31–33%	23–27%	Lowered
Adjusted Diluted EPS ($)	FY2025	$1.07–$1.20	$0.93–$1.06	Lowered

Drivers: services delays/cancellation (~~$2M impact), cautious client spending, slower contractual commitments; reorganization cost savings (~~$4M annualized) to benefit forward periods but fourth-quarter margin pressured by revenue step-down and seasonal marketing/conference spend .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 FY2025, Q2 FY2025)	Current Period (Q3 FY2025)	Trend
AI/Technology Initiatives	Emphasis on platform adoption; integration progress of ALI/MC units	Detailed AI roadmap for GastroPlus (AssessmentsPlus, Orchestrator, GastroPlusGPT) and portfolio-wide integration	Expanding scope and specificity
Tariffs/Macro & Funding	Ongoing funding challenges/cost constraints in pharma/biotech	Headwinds include tariffs, pricing policies, NIH/FDA budget reductions; clients remain cautious	Macro headwinds intensify
Regulatory (FDA NAM)	Supported FDA roadmap to reduce animal testing (press)	NAM discussion prevalent with clients; long-term positive but near-term impact limited pending guidance	Constructive long-term
Product Performance	QSP model license strength; MonolixSuite growth; strong software in Q2	ADMET Predictor growth; GastroPlus modest; MonolixSuite impacted by consolidation; QSP/QST software down on lumpy comps	Mixed performance
Services Execution	Q1 bookings strong in CPP/MC; backlog +13% in Q2	Medical Communications drove services growth; delays and cancellation hit PK/PD/QSP/QST; backlog up to $20.7M	Uneven; backlog building

Management Commentary

“Our software revenue continued to perform well, increasing 6%, mainly driven by our ADMET Predictor… modest growth in GastroPlus and MonolixSuite… partially offset by a decline in our QSP/QST biosimulations software.” — Shawn O’Connor, CEO .
“We experienced a decline in other service areas, largely due to cautious spending behavior, project delays and a cancellation from our BioPharma clients… impacting third quarter bookings.” — Shawn O’Connor, CEO .
“We recognized a one-time non-cash impairment charge of $77.2 million… aligns the book value of our assets to their current market value… as we streamline our operating structure.” — Shawn O’Connor, CEO .
“Adjusted EBITDA for the quarter was $7.4 million, or 37% of revenue… total gross margin was 64%, with software gross margin of 80% and services gross margin of 38%.” — Will Frederick, CFO .
“We now expect total revenue to be between $76–$80 million… adjusted EBITDA margin between 23% and 27%, and adjusted diluted earnings per share of between $0.93 and $1.06.” — Will Frederick, CFO .

Q&A Highlights

Margin outlook: Q4 adjusted EBITDA margin expected mid-to-high 20s due to revenue step-down and largely fixed personnel/amortization costs; ~$4M annual cost savings from reorganization benefit FY2026 more than Q4 .
Renewal rates: Drop to 84% (fees) and 71% (accounts) attributed to client consolidations/site closures for GastroPlus and Monolix; management expects long-term renewal rates to normalize in the 90–95% range (fees) .
FDA NAM roadmap: Broad momentum for modeling/simulation, but near-term revenue impact requires patience pending detailed guidance; conversations active with clients in preclinical/translational phases .
Services cancellation: One client canceled two programs after poor readouts, impacting near-term revenues by ~$2M (mostly Q4), with company-wide cautious demand environment persisting into summer .
Pro-ficiency and MC: FY2025 contribution revised to $9–$12M; a large MC engagement initiated but faced commercialization-related delay; long-term commitment to clinical ops with complementary Nurocor investment .

Estimates Context

Next quarter consensus (S&P Global): Q4 FY2025 revenue $17.39M*, EPS $(0.02), EBITDA $3.38M; Q1 FY2026 revenue $17.93M*, EPS $0.07*, EBITDA $4.68M*. Coverage counts: Q4 revenue n=6*, EPS n=2*; Q1 revenue n=7*, EPS n=3*. Values retrieved from S&P Global.
Q3 FY2025 consensus not available via S&P Global at time of retrieval; use actual results tables above to anchor model updates [GetEstimates output*].
Implications: Guidance cut (revenue $76–$80M; adj. EPS $0.93–$1.06) suggests downward estimate revisions for FY2025 and near-term services trajectory; watch for FY2026 guide at Q4 .

Key Takeaways for Investors

Guidance reset and impairment are the quarter’s defining negatives; expect estimate and target price pressure while the company reprioritizes costs and execution in services .
Software performance remains the core driver with resilient growth; monitor renewal rate stabilization post-consolidation and upcoming AI-enhanced releases as potential catalysts .
Backlog build to $20.7M (91% expected conversion within 12 months) supports medium-term services revenue recovery once delays normalize; watch conversion cadence and cancellation risk .
Near-term margin compression likely into Q4 on revenue step-down and fixed costs; cost actions (~$4M annual savings) position FY2026 for margin rebuilding if demand stabilizes .
Clinical operations/MedComm are strategic but cyclical; Pro-ficiency/Nurocor provide optionality for AI-driven trial productivity, yet commercialization budgets remain a headwind .
Regulatory tailwinds (FDA NAM roadmap) strengthen the long-term modeling/simulation thesis; timing to translate into bookings remains uncertain, but narrative supportive .
Trading setup: expect near-term volatility around Q4 print and FY2026 guide; positioning should reflect execution on AI product rollouts, renewal rates, and services backlog conversion cadence .

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