Simulations Plus Q2 Earnings Call Highlights

Key Points

• Q2 revenue of $24.3 million (+8% YoY) topped management guidance, with adjusted EBITDA of $8.7 million (36% margin) and adjusted EPS $0.35; full-year revenue guidance remains $79–$82 million while adjusted diluted EPS was updated to $0.75–$0.85 reflecting a higher expected effective tax rate (23–25%).
• Operational momentum included software-led growth (software +9%, services +8%), a services backlog up 18% to $24 million, expanded gross margin to 66%, 297 commercial clients, and a quarterly renewal rate of 91%.
• AI and pharma collaborations are being embedded across the product roadmap and involve three large pharma partners, but management does not expect meaningful financial contribution from these programs until fiscal 2027.

Simulations Plus NASDAQ: SLP reported second-quarter fiscal 2026 revenue of $24.3 million, exceeding the top-line guidance management provided last quarter, as the company delivered growth in both its software and services segments. Chief Executive Officer Sean O’Connor said adjusted EBITDA was $8.7 million, representing a 36% margin, and adjusted diluted EPS was $0.35, which he said was “in line with our internal expectations.”

Management cites improving market conditions and increased client activity

O’Connor said the company continues to see “encouraging market conditions globally,” pointing to factors including “ongoing most favored nation pricing agreements, easing tariff concerns, and a more supportive funding environment for our customers.” He also noted that guidance around new approach methodologies (NAMs) issued late last year was “further clarified with an additional update last month.”

Against that backdrop, O’Connor said Simulations Plus is seeing “a pickup in client spending,” which he said is reflected in “solid software renewal rates, increased new logo activity, and strength in service bookings.” While he characterized the first half as strong, O’Connor also emphasized caution about the operating environment during the question-and-answer portion of the call, describing it as “fragile” given macro and industry uncertainty.

Quarterly segment results and client metrics

Chief Financial Officer Will Frederick said total revenue increased 8% year over year to $24.3 million. Software revenue increased 9% and represented 60% of revenue, while services revenue increased 8% and represented 40%.

• Discovery software (primarily ADMET Predictor) rose 19% in the quarter; it was 19% of total software revenue.
• Development software (primarily GastroPlus and MonolixSuite) increased 12%; it represented 78% of total software revenue.
• Clinical operations software (primarily Pro-ficiency) declined 54%; it represented 3% of total software revenue.

Frederick said the company ended the quarter with 297 commercial clients, an average revenue per client of $124,000, and a 91% renewal rate for the quarter. On a trailing 12-month basis, average revenue per client was $148,000 and renewal rate was 87%.

Frederick addressed renewal trends, saying the company has historically had 100% logo retention among its top 20 pharma clients and 90% logo retention among “$1 billion-plus pharma.” He said churn has been concentrated among smaller commercial pharma and pre-commercial biotech customers, which he described as historically more episodic. He added that the company’s top 25 customers represent about 46% of overall software revenue, with 100% logo retention and “90%-plus gross revenue retention.”

Services backlog rises; margins improve

In services, Frederick said development services revenue increased 12% for the quarter and represented 77% of services revenue, while commercialization services (including MedComm) declined 1% and represented 23% of services revenue. He said the company worked on 199 total services projects during the quarter and ended with backlog of $24 million, up 18% from $20.4 million a year ago.

Gross margin expanded to 66% in the quarter, including software gross margin of 89% and services gross margin of 33%, compared with total gross margin of 59% in the prior-year period. Frederick attributed the increase in software gross margin to higher software revenue and “lower software-related costs,” which he said largely reflected “reduced amortization expense following the impairment charge in the third quarter of fiscal 2025.”

AI strategy, pharma collaborations, and guidance update

O’Connor spent a portion of his prepared remarks addressing investor concerns about artificial intelligence and software valuations. He said the company views AI advances as “a net positive for biosimulation,” arguing AI will enhance “trusted and validated scientific engines rather than replacing them.” O’Connor said Simulations Plus is embedding AI across its product roadmap, including automation, data management, and interoperability between modeling engines.

He also highlighted recently announced strategic collaboration programs with three large pharmaceutical companies to advance AI workflows across drug development. O’Connor said the programs will use Simulations Plus’ platforms including GastroPlus, MonolixSuite, ADMET Predictor, and PKpluS, and will integrate internally developed AI agents to enable natural language interaction, automate data processing, and coordinate simulations across multiple modeling engines.

In response to analyst questions, O’Connor said the collaborations were not new relationships and had been underway prior to the company’s January Investor Day. He said each collaboration has a different focus, and while there has already been “some financial component to at least one of the relationships,” longer-term financial terms are still being discussed. Later, he told analysts the company has “certainly not anticipated, in fiscal year 2026, significant contribution from this arena at all in our guidance,” and said he would “look out to this being a contributor to fiscal year 2027.”

Frederick said full-year fiscal 2026 revenue guidance remains “relatively unchanged,” calling for total revenue of $79 million to $82 million, year-over-year growth of 0% to 4%, software mix of 57% to 62%, and adjusted EBITDA margin of 26% to 30%.

The company updated adjusted diluted EPS guidance to $0.75 to $0.85 to reflect a higher expected effective tax rate. Frederick said the effective tax rate rose to 23% in the quarter from 12% a year ago and is now expected to be 23% to 25% for fiscal 2026, compared with a prior expectation of 12% to 14%. He cited factors including the absence of a favorable prior-year discrete item, jurisdictional mix between the U.S. and France, higher GILTI impacts, and a lower FDII benefit. He also noted certain items related to “accelerated deductions elected under the One Big Beautiful Bill Act,” which he said should be favorable to cash flows by reducing near-term cash tax payments.

For the third quarter of fiscal 2026, Frederick guided to revenue of $20 million to $22 million, adjusted EBITDA margin of 27% to 33%, and adjusted diluted EPS of $0.20 to $0.27. He also noted the company ended the quarter with $41.8 million in cash and short-term investments and “no debt.”

About Simulations Plus NASDAQ: SLP

Simulations Plus, Inc NASDAQ: SLP specializes in advanced modeling and simulation software tailored to the pharmaceutical, biotechnology and chemical industries. The company's flagship products include ADMET Predictor, a quantitative structure-activity relationship (QSAR) tool for predicting absorption, distribution, metabolism, excretion and toxicity properties, and GastroPlus, a physiologically based pharmacokinetic (PBPK) modeling platform for simulating drug absorption and pharmacokinetics.

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