SLP — Simulations Plus, Inc.

Summary of Simulations Plus Incorporated Q2 2026 Earnings Call

1. Key Financial Results and Metrics

• Revenue: $24.3 million, an 8% increase year-over-year.
• Adjusted EBITDA: $8.7 million, reflecting a 36% margin.
• Adjusted Diluted EPS: $0.35, consistent with internal expectations.
• Software Revenue: Increased 9%, contributing 60% of total revenue.
• Services Revenue: Increased 8%, contributing 40% of total revenue.
• Client Metrics: 297 commercial clients with an average revenue per client of $124,000. Renewal rate at 91% for the quarter.
• Gross Margin: Total gross margin at 66%, with software gross margin at 89% and services gross margin at 33%.

2. Strategic Updates and Business Highlights

• AI Integration: Simulations Plus is embedding AI across its product roadmap, enhancing software capabilities and client workflows.
• Collaborations: Announced strategic partnerships with three large pharmaceutical companies to advance AI workflows in drug development.
• Service Backlog: Increased 18% to $24 million, indicating a healthy pipeline of service projects.
• Sales Strategy: Transitioning to a regional account-based model to deepen client relationships and enhance cross-selling opportunities.

3. Forward Guidance and Outlook

• Fiscal 2026 Revenue Guidance: Expected between $79 million to $82 million, with year-over-year growth of 0% to 4%.
• Adjusted EBITDA Margin: Expected between 26% to 30%.
• Adjusted Diluted EPS: Revised to range between $0.75 to $0.85 due to changes in the effective tax rate.
• Q3 2026 Revenue Guidance: Anticipated between $20 million to $22 million, with an adjusted EBITDA margin of 27% to 33%.

4. Bad News, Challenges, or Points of Concern

• Regulatory and Macro Environment: The company remains cautious due to fragile macroeconomic conditions and potential regulatory challenges.
• Decline in Clinical Operations Revenue: Clinical operations revenue declined 54% for the quarter, indicating challenges in that segment.
• Churn in Smaller Clients: Notable churn primarily among smaller biopharma companies, affecting overall renewal rates.
• AI Monetization: Minimal expectations for AI monetization in the current fiscal year, with significant contributions expected only in FY 2027.

5. Notable Q&A Insights

• Collaborations with Pharma: The three large pharma collaborations are not new relationships but rather extensions of existing partnerships focused on AI integration.
• New Logos: New clients are primarily from smaller biopharma companies, indicating a mix of new customer acquisition and competitive conversions.
• Cross-Selling Opportunities: There is significant potential for cross-selling across existing clients, especially as the sales strategy shifts to a more integrated approach.
• AI Budget Growth: There is optimism about capturing budget growth from AI investments within client organizations, which could enhance revenue opportunities beyond traditional modeling budgets.

Overall, Simulations Plus reported solid financial performance in Q2 2026, driven by growth in both software and services, while also navigating challenges related to client churn and regulatory uncertainties. The company is strategically positioning itself to leverage AI advancements and deepen client relationships moving forward.