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Simulations Plus, Inc. (SLP)·Q4 2025 Earnings Summary

Executive Summary

  • Fourth-quarter results are scheduled for December 1; management pre-guided full-year FY2025 to revenue of $79.1M (+13% YoY), adjusted EBITDA margin ~28%, and adjusted diluted EPS $1.03, implying a sequential Q4 step-down tied to services softness and a large client cancellation; consensus for Q4 is $17.39M revenue and $(0.02) EPS.*
  • FY2025 guidance was lowered in July to revenue $76–$80M and adjusted diluted EPS $0.93–$1.06, then affirmed by the October preliminary; management issued FY2026 preliminary guidance for revenue $79–$82M, adjusted EBITDA margin 26–30%, and adjusted diluted EPS $1.03–$1.10.
  • Q3 delivered resilient software growth (62% mix) and strong non-GAAP profitability (adjusted EBITDA 37%, adjusted EPS $0.45), but a non-cash impairment of $77.2M drove a GAAP EPS loss of $(3.35).
  • Near-term stock catalysts: the December 1 earnings release and call (with FY2026 guidance detail), progress on AI rollouts (GastroPlus X.2 on S+ Cloud), and backlog conversion; overhang from multiple law-firm “investigation alerts” was prominent in Q4 headlines.

What Went Well and What Went Wrong

What Went Well

  • Software resilience and mix: Q3 software revenue grew 6% to $12.6M (62% of total), aided by ADMET Predictor and modest GastroPlus/Monolix growth; adjusted EBITDA rose to $7.4M (37% of revenue), and adjusted EPS to $0.45.
  • AI and cloud strategy momentum: “GastroPlus X.2 (GPX.2) marks the debut of our AI-powered tools on the S+ Cloud—an important first step in our broader, integrated Cloud and AI strategy.” — CEO Shawn O’Connor.
  • Backlog held up despite services caution: Q3 backlog ended at $20.7M, up both sequentially and year over year, with medical communications contributing.

What Went Wrong

  • Significant non-GAAP/GAAP divergence: A one-time non-cash impairment of $77.2M drove GAAP net loss of $67.3M (diluted EPS $(3.35)) despite non-GAAP profitability.
  • Services pressure and cancellation: Management cited slower bookings conversion, project delays, and a “significant client cancellation” (~$2M near-term impact), weighing on Q3 and flowing into Q4/FY2026.
  • Renewal rates dipped: Q3 software renewal fell to 84% on fees and 71% on accounts (vs. 90% and 84% in Q2), driven by client consolidations/site closures.

Financial Results

Income and Profitability vs. Prior Periods and Estimates

MetricQ2 2025Q3 2025Q4 2025E
Revenue ($USD Millions)$22.43 $20.36 $17.39*
GAAP Diluted EPS ($USD)$0.15 $(3.35) $(0.02)*
Adjusted Diluted EPS ($USD)$0.31 $0.45 N/A
Gross Margin (%)59% 64% N/A
Adjusted EBITDA Margin (%)29% 37% N/A

Estimates marked with * retrieved from S&P Global.

Mix and Segments

MetricQ2 2025Q3 2025
Software Mix (% of Revenue)60% 62%
Services Mix (% of Revenue)40% 38%

Software Product Contribution (% of Software Revenue)

ProductQ2 2025Q3 2025
GastroPlus46% 56%
MonolixSuite23% 17%
ADMET Predictor17% 20%
Pro‑ficiency7% 3%
QSP/QST—4%
Other Products7% —

KPIs and Operating Metrics

KPIQ2 2025Q3 2025
Backlog ($USD Millions)$20.4 $20.7
Software Renewal Rate (Fees)90% 84%
Software Renewal Rate (Accounts)84% 71%
Avg. Software Revenue per Customer ($000s)$124 $96
Software Gross Margin (%)81% 80%
Services Gross Margin (%)25% 38%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)FY2025$90–$93 $76–$80 Lowered
Adjusted EBITDA Margin (%)FY202531–33 23–27 Lowered
Adjusted Diluted EPS ($USD)FY2025$1.07–$1.20 $0.93–$1.06 Lowered
Software Mix (%)FY202555–60 55–60 Maintained
Effective Tax Rate (%)FY202521–23 (CFO) N/AN/A
Revenue ($USD Millions)FY2026—$79–$82 New
Adjusted EBITDA Margin (%)FY2026—26–30 New
Adjusted Diluted EPS ($USD)FY2026—$1.03–$1.10 New
Software Mix (%)FY2026—57–62 New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2025)Previous Mentions (Q3 2025)Current Period (Q4 2025)Trend
AI/technology initiativesEarly emphasis on AI predictive analytics and cloud roadmap; QSP model licensing momentum Detailed AI rollout plan: GastroPlus AssessmentsPlus, Orchestrator, GastroPlusGPT; portfolio-wide integration next year GPX.2 debuts AI tools on S+ Cloud; broader integrated Cloud+AI strategy Building momentum
Tariffs/macro/fundingCustomers cautious; minimal NIH exposure; services starts delayed Multiple headwinds (IRA pricing, tariffs, NIH/FDA budgets); cautious spending; services cancellation Market assumed stable in FY2026 guide; investor conferences planned Persistent caution
Product performanceQSP +89% (license), CHEM +8%, CPP +9%; PBPK renewals deferred to Q3 GastroPlus +4% YoY; Monolix high-teens TTM; QSP/QST −39% YoY (lumpy) FY2025 software mix prelim 58% Mixed; software resilient
Services and backlogStrong bookings, slow starts; backlog $20.4M Backlog $20.7M; services growth but delays/cancellation Q4 still impacted by services softness per comments Backlog stable; conversion slower
Regulatory/legalFDA NAM guidance support for in‑silico methods; low NIH risk FDA support for AI; NAM roadmap; patience on revenue impact Multiple external law‑firm “investigation alerts” circulate Supportive science; legal noise
Reorganization/costS&M timing; reiterate 35–40% adj EBITDA target over time Shift to functional model; ~$4M annualized savings; Q4 EBITDA mid‑high 20s expected FY2026 guide reflects stable ops; preliminary margins 26–30% Efficiency actions ongoing

Management Commentary

  • “We expect to successfully meet our revised fiscal 2025 guidance… Looking ahead, we are issuing preliminary guidance for fiscal 2026… GPX.2 marks the debut of our AI‑powered tools on the S+ Cloud.” — Shawn O’Connor, CEO.
  • “Our software revenue continued to perform well … ADMET Predictor® drove growth … we recognized a one‑time non‑cash impairment charge of $77.2 million … we implemented a strategic reorganization.” — Q3 press release.
  • “Our AI‑enhanced GastroPlus release … includes AssessmentsPlus … Orchestrator … GastroPlusGPT … portfolio‑wide AI rollout will extend into ADMET Predictor and MonolixSuite.” — Q3 call prepared remarks.
  • “We remain well‑capitalized with no debt and strong free cash flow to execute our growth strategy.” — CFO.

Q&A Highlights

  • Q4 margin/EBITDA color: Management guided Q4 adjusted EBITDA margin to the mid‑high 20s, with revenue step‑down and largely fixed costs constraining margins despite cost saves.
  • Renewal rates and consolidations: Q3 renewal rates fell (fees 84%, accounts 71%) due to client consolidations/site closures; management views long‑term fee renewals in the 90–95% range.
  • Services cancellation and pipeline: A single client cancellation (~$2M impact) and delayed project starts weigh on Q4; backlog increased but timing pushed into later quarters.
  • AI monetization and cadence: Pricing aims to capture value of AI features without a near‑term shift to transactional SaaS; cloud delivery may enable more frequent updates subject to client IT/SOP constraints.
  • Pro‑ficiency/MedCom expectations: FY2025 contribution guided to $9–$12M; a large MedCom engagement initiated with some delay, still running through calendar 2025.

Estimates Context

  • Q4 2025 consensus: Revenue $17.39M; Primary EPS $(0.02); 6 revenue estimates and 2 EPS estimates.* Compared to Q3 actual revenue $20.36M and GAAP EPS $(3.35) driven by impairment, consensus implies a sequential revenue decline and near-breakeven GAAP EPS consistent with management’s Q4 caution (services softness, cancellation). *
  • Estimates may need to adjust after December 1: management will provide full FY2026 guidance details and clarify Q4 mix/margins; watch for services booking conversion cadence and any software renewal normalization.

Estimates marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Expect a softer Q4 vs. Q3 on revenue/margins due to services delays and a ~$2M cancellation; adjusted EBITDA margin guided mid‑high 20s. Short‑term trading: bias to volatility around Dec 1 as narrative focuses on services conversion and renewal rates.
  • FY2025 preliminary results suggest Simulations Plus will meet revised guidance at the high end; FY2026 preliminary guide points to low‑single‑digit revenue growth with margin stability (adjusted EBITDA 26–30%). Medium‑term thesis: software resilience plus AI productivity gains.
  • Software is the ballast: GastroPlus, MonolixSuite, and ADMET Predictor continue to grow; watch for AI‑enabled upsells and renewal normalization back toward 90–95% on fees.
  • Backlog is healthy but slower to convert; monitor MedCom and CPP project starts and the impact of macro uncertainties (IRA pricing, tariffs, funding).
  • Non‑GAAP vs GAAP optics matter: the large impairment obscured underlying profitability in Q3; focus on adjusted metrics and cash (no debt, positive operating cash flow trajectory).
  • AI rollouts are a core catalyst: GPX.2 on S+ Cloud is live; portfolio‑wide AI integration (“AssessmentsPlus,” “Orchestrator,” “GastroPlusGPT”) can drive user productivity and pricing power.
  • Legal headline overhang exists from multiple external “investigation alerts,” though these are not company‑issued; monitor for any SEC or litigation developments.