SLP — Simulations Plus, Inc.

Summary of Simulations Plus Incorporated Q2 2026 Earnings Call

1. Key Financial Results and Metrics:

• Total Revenue: $24.3 million, an 8% increase year-over-year.
• Software Revenue: Increased by 9%, accounting for 60% of total revenue.
• Services Revenue: Increased by 8%, representing 40% of total revenue.
• Adjusted EBITDA: $8.7 million, reflecting a 36% margin.
• Adjusted Diluted EPS: $0.35, consistent with internal expectations.
• Gross Margin: Total gross margin improved to 66%, with software gross margin at 89% and services gross margin at 33%.
• Cash Position: $41.8 million in cash and short-term investments, with no debt.

2. Strategic Updates and Business Highlights:

• The company is experiencing positive market conditions, including improved client spending and solid software renewal rates.
• Strategic collaborations with three large pharmaceutical companies were announced to enhance AI workflows in drug development.
• The company continues to integrate AI into its product offerings, enhancing efficiency and interoperability across its software platforms.
• Simulations Plus is transitioning towards an integrated AI-driven biosimulation ecosystem, aiming to support the entire drug development lifecycle.

3. Forward Guidance and Outlook:

• Fiscal 2026 Revenue Guidance: Expected between $79 million to $82 million, with year-over-year growth projected at 0% to 4%.
• Adjusted EBITDA Margin: Anticipated between 26% to 30%.
• Adjusted Diluted EPS: Expected to range between $0.75 to $0.85, reflecting changes in the effective tax rate.
• Q3 2026 Revenue Guidance: Projected between $20 million to $22 million, with an adjusted EBITDA margin of 27% to 33% and adjusted diluted EPS between $0.20 to $0.27.

4. Bad News, Challenges, or Points of Concern:

• Declining Metrics: Clinical operations revenue saw a significant decline of 54% for the quarter and 58% for the trailing 12-month period.
• Software Renewal Rates: While overall renewal rates remain strong, there has been a noted decline in renewal rates among smaller biopharma companies.
• Market Fragility: The management expressed caution regarding the macroeconomic environment, indicating potential headwinds from global politics and the biopharma sector.
• AI Monetization: Minimal expectations for AI monetization contributions in the current fiscal year, with discussions ongoing regarding economic models with collaborative partners.

5. Notable Q&A Insights:

• Collaborations with Pharma: The partnerships with large pharma clients are focused on tailoring AI capabilities to meet specific needs, with discussions on financial arrangements ongoing.
• New Logos and Cross-Selling: New logos are primarily from clients adopting solutions for the first time, with cross-selling opportunities identified across existing clients.
• Service Backlog Growth: The increase in service backlog is attributed to strong pipeline activity, particularly in development services.
• AI Budget Opportunities: The management highlighted the potential for growth in AI budgets within client organizations, which could provide additional revenue streams beyond traditional modeling and simulation budgets.

Overall, Simulations Plus demonstrated solid financial performance in Q2 2026, with strategic initiatives focused on AI integration and collaborations with major pharmaceutical companies, despite facing challenges in certain revenue segments and a cautious outlook on macroeconomic conditions.