SLP — Simulations Plus, Inc.

Summary of Simulations Plus (SLP) Q1 2026 Earnings Call

1. Key Financial Results and Metrics

• Total Revenue: Decreased 3% year-over-year to $18.4 million.
• Software Revenue: Decreased 17%, accounting for 48% of total revenue.
• Services Revenue: Increased 16%, making up 52% of total revenue.
• Adjusted EBITDA: Reported at $3.5 million.
• Adjusted EPS: $0.13, consistent with internal expectations.
• Gross Margin: Total gross margin improved to 59% (up from 54%); software gross margin at 84% (up from 75%); services gross margin at 36% (up from 26%).
• Client Metrics: 302 commercial clients with an average revenue per client of $97,000 and an 88% renewal rate for the quarter.

2. Strategic Updates and Business Highlights

• Continued focus on developing an integrated product ecosystem combining validated science, cloud-scale performance, and AI-driven tools.
• Positive macro trends noted, including improved biotech funding and stabilization in pricing agreements.
• Services segment showed strong performance, particularly in MedCom services, which grew 42% year-over-year.
• Backlog of services projects increased 18% to $20.4 million.
• AI integration into the product line is progressing positively, with favorable customer feedback on initial releases.

3. Forward Guidance and Outlook

• Fiscal Year 2026 Guidance: Total revenue expected between $79 million and $82 million (0% to 4% growth year-over-year).
• Software Revenue Mix: Anticipated to be between 57% and 62% of total revenue.
• Adjusted EBITDA Margin: Expected to be between 26% and 30%.
• Adjusted Diluted EPS: Projected between $1.03 and $1.10.
• Q2 Revenue Forecast: Approximately $21 million to $22 million.

4. Bad News, Challenges, or Points of Concern

• Software Revenue Decline: Notable decreases in software revenue, particularly in clinical operations (down 82% year-over-year), attributed to market conditions and client consolidations.
• Renewal Rates: Slight decline in renewal rates to 88%, with historical levels above 90%. Some renewals were delayed, impacting this metric.
• Market Conditions: Ongoing consolidation in the pharma sector continues to pose a risk to software renewals and revenue stability.
• QSP Model Licensing: Experienced a difficult comparison to a strong prior year, leading to lower revenue expectations for this segment in the near term.

5. Notable Q&A Insights

• Management expressed optimism regarding improved customer budgets and spending, indicating a potential shift from constrained spending to increased allocations for modeling and simulation.
• The impact of regulatory guidance from the FDA is expected to positively influence software licensing in the future.
• The integration of AI into products is seen as a key driver for future pricing flexibility and renewal negotiations.
• The company plans to provide more detailed insights into its product roadmap and integrated ecosystem during the upcoming Investor Day on January 21.

Overall, while Simulations Plus faces challenges in software revenue and renewal rates, the company is optimistic about improving market conditions and the potential for growth driven by its strategic initiatives and integrated product ecosystem.