Financial Data and Key Metrics Changes - Third quarter revenue increased by 10% to $20.4 million, including a $2.4 million contribution from the Proficiency acquisition, while organic revenue declined by 4% due to lower software and biosimulation services revenue [5][21] - Diluted EPS loss was $3.35, including a non-cash impairment expense of $77.2 million, compared to a profit of $0.15 last year; adjusted diluted EPS was $0.45 compared to $0.27 last year [6][27] - Adjusted EBITDA was $7.4 million, or 37% of revenue, compared to $5.6 million, or 30% of revenue last year [6][27] Business Line Data and Key Metrics Changes - Software revenue grew by 6%, representing 62% of total revenue, while services revenue increased by 17%, representing 38% of total revenue [21] - The ADMET Predictor platform grew by 8% year over year, while the QSV QST biosimulation platform declined by 39% year over year [12][14] - Proficiency contributed $400,000 in revenue for the quarter and $4.4 million on a trailing twelve-month basis [15] Market Data and Key Metrics Changes - The clinical operations space is facing headwinds due to market disruptions affecting clinical trial initiations and commercialization budgets, impacting revenue outlook for fiscal year 2025 and into 2026 [7][10] - The biopharma market has been challenging, with large pharma facing patent expirations and pricing pressures, while biotech companies are experiencing a pullback in available capital [10] Company Strategy and Development Direction - The company is committed to its clinical operations and medical communications businesses, focusing on leveraging AI technologies to improve clinical operational efficiencies [8][9] - A strategic reorganization was implemented to transition to a functionally driven operating model, aimed at enhancing client engagement and streamlining operations [18][20] - The company plans to roll out new AI-driven initiatives across its product suite, including enhancements to the GastroPlus platform [31][35] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about long-term prospects for biosimulation growth and the use of AI in clinical operations, despite current market headwinds [29][30] - The company anticipates modest improvement in fiscal year 2026 compared to fiscal year 2025, with expectations of flat organic revenue growth [31] - Management highlighted the importance of adapting to client needs and market conditions to optimize performance [51] Other Important Information - The company ended the quarter with $28.5 million in cash and short-term investments, remaining well-capitalized with no debt [28] - The total gross margin for the quarter was 64%, down from 71% in the prior year, primarily due to increased costs of revenues [24] Q&A Session Summary Question: What is driving the margin erosion next quarter? - Management indicated that the reorganization and expense structure changes will impact future margins, with a revenue step down affecting fourth quarter margins [38][40] Question: Can you provide more color on the renewal rates drop? - Management noted that renewal rates were impacted by client consolidations and site closures, but historically, renewal rates have been maintained in the 90% to 95% range [41][43] Question: Are clients becoming more comfortable with the new FDA guidance? - Management stated that while the FDA's announcement is significant, it will take time for clients to translate this into actionable steps, and the environment remains cautious [46][48] Question: What has been the biggest headwind recently? - Management highlighted that multiple uncertainties are causing clients to be cautious in their spending decisions, rather than a single factor [50] Question: What are the expectations for R&D investment moving forward? - Management indicated a commitment to balancing R&D investment with the goal of improving EBITDA, with opportunities for increased spending in AI development [82] Question: Will product development pacing change with AI initiatives? - Management confirmed that while there will be more frequent updates, the regulatory environment may limit how often clients can adopt new features [90]

Financial Performance and Outlook [Third Quarter 2025 Financial Highlights](index=1&type=section&id=Third%20Quarter%202025%20Financial%20Highlights) Simulations Plus reported a 10% revenue increase in Q3 FY2025, but a significant net loss due to a one-time impairment charge, while adjusted metrics showed growth Q3 FY2025 vs Q3 FY2024 Financial Highlights | Metric | Q3 FY2025 | Q3 FY2024 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $20.4 million | $18.5 million | +10% | | Software Revenue | $12.6 million | $11.9 million | +6% | | Services Revenue | $7.7 million | $6.6 million | +17% | | Gross Profit | $13.0 million | $13.3 million | -2.3% | | Gross Margin | 64% | 71.5% | -7.5 p.p. | | Net (Loss) Income | ($67.3 million) | $3.1 million | N/A | | Diluted (Loss) EPS | ($3.35) | $0.15 | N/A | | Adjusted EBITDA | $7.4 million | $5.6 million | +32.1% | | Adjusted Diluted EPS | $0.45 | $0.27 | +66.7% | - The quarterly results were significantly impacted by a non-cash impairment charge of **$77.2 million**[5](index=5&type=chunk)[6](index=6&type=chunk) [Nine Months 2025 Financial Highlights](index=1&type=section&id=Nine%20Months%202025%20Financial%20Highlights) For the first nine months of fiscal 2025, revenue increased by 20%, but a substantial net loss was recorded due to the impairment charge, while adjusted metrics showed growth Nine Months FY2025 vs Nine Months FY2024 Financial Highlights | Metric | Nine Months FY2025 | Nine Months FY2024 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $61.7 million | $51.3 million | +20% | | Software Revenue | $36.8 million | $31.1 million | +18% | | Services Revenue | $24.9 million | $20.2 million | +23% | | Gross Profit | $36.4 million | $36.3 million | +0.1% | | Gross Margin | 59% | 70.7% | -11.7 p.p. | | Net (Loss) Income | ($64.0 million) | $9.1 million | N/A | | Diluted (Loss) EPS | ($3.19) | $0.45 | N/A | | Adjusted EBITDA | $18.5 million | $16.1 million | +14.9% | | Adjusted Diluted EPS | $0.93 | $0.77 | +20.8% | [Management Commentary](index=1&type=section&id=Management%20Commentary) Management discussed Q3 revenue drivers, strategic reorganization, and future AI-driven initiatives, noting the impact of a significant non-cash impairment charge - Software revenue growth of **6%** was mainly driven by ADMET Predictor®, with modest growth in GastroPlus® and MonolixSuite, offset by a decline in QSP/QST biosimulations software[4](index=4&type=chunk) - Services revenue grew **17%**, but the company experienced project delays and a cancellation from BioPharma clients due to cautious spending, which slowed contractual commitments[4](index=4&type=chunk) - A one-time non-cash impairment charge of **$77.2 million** was recognized to align the book value of assets with their current market value[6](index=6&type=chunk) - The company underwent a strategic reorganization, shifting from a business unit structure to a **functionally-driven operating model** to streamline operations and unlock synergies[7](index=7&type=chunk) - The company is rolling out **new AI-driven initiatives** across its product lines to expand its value proposition and solidify its leadership in model-informed drug development[8](index=8&type=chunk) [Fiscal 2025 Guidance](index=2&type=section&id=Fiscal%202025%20Guidance) Simulations Plus updated its full-year fiscal 2025 guidance, projecting revenue growth between 9% and 14% and an adjusted diluted EPS range Updated Fiscal 2025 Guidance | Metric | Guidance Range | | :--- | :--- | | Revenue | $76M - $80M | | Revenue Growth | 9% - 14% | | Software Mix | 55% - 60% | | Adjusted EBITDA Margin | 23% - 27% | | Adjusted Diluted EPS | $0.93 - $1.06 | Financial Statements [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The income statement shows year-over-year revenue growth but a substantial shift to a net loss due to a significant impairment charge in Q3 FY2025 Selected Income Statement Data (in thousands) | Metric | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | Nine Months Ended May 31, 2025 | Nine Months Ended May 31, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $20,363 | $18,544 | $61,719 | $51,349 | | Gross Profit | $13,032 | $13,257 | $36,377 | $36,326 | | Impairments | $77,221 | $— | $77,221 | $— | | (Loss) Income from Operations | ($74,226) | $1,880 | ($71,388) | $7,282 | | Net (Loss) Income | ($67,317) | $3,137 | ($64,037) | $9,111 | | Diluted (Loss) EPS | ($3.35) | $0.15 | ($3.19) | $0.45 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet reflects a significant reduction in total assets and shareholders' equity as of May 31, 2025, primarily due to the impairment charge Selected Balance Sheet Data (in thousands) | Metric | May 31, 2025 | August 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $26,950 | $10,311 | | Total current assets | $51,775 | $39,341 | | Goodwill | $43,487 | $96,078 | | Total assets | $134,360 | $196,639 | | Total liabilities | $10,581 | $14,208 | | Total shareholders' equity | $123,779 | $182,431 | [Trended Financial Information](index=7&type=section&id=Trended%20Financial%20Information) Quarterly trended data shows revenue fluctuations and a deeply negative operating margin in Q3 FY2025 due to the impairment charge, with services backlog continuing to grow Quarterly Revenue Trend (in millions) | Quarter | Q3 FY24 | Q4 FY24 | Q1 FY25 | Q2 FY25 | Q3 FY25 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $18.544 | $18.664 | $18.924 | $22.432 | $20.363 | Key Performance Metrics Trend | Metric (end of quarter) | Q3 FY24 | Q1 FY25 | Q2 FY25 | Q3 FY25 | | :--- | :--- | :--- | :--- | :--- | | Services Backlog (in millions) | $19.602 | $17.254 | $20.379 | $20.700 | - Revenue from the Americas region was $14.5 million in Q3 FY25, representing the **largest portion of total revenue**[26](index=26&type=chunk) Non-GAAP Financial Measures and Reconciliations [Explanation of Non-GAAP Measures](index=2&type=section&id=Explanation%20of%20Non-GAAP%20Measures) The company uses non-GAAP measures like Adjusted EBITDA and Adjusted Diluted EPS to clarify core operating performance by excluding non-recurring or non-operational items - **Adjusted EBITDA** excludes interest, taxes, amortization, equity-based compensation, goodwill impairment, and other non-recurring or non-operational items[14](index=14&type=chunk) - **Adjusted Net Income and Adjusted Diluted EPS** exclude the same items as Adjusted EBITDA, as well as the income tax effect of these adjustments[15](index=15&type=chunk) - Management uses these non-GAAP measures for **internal planning, evaluating historical performance, and calculating performance-based compensation**[12](index=12&type=chunk) [Reconciliation of Adjusted EBITDA to Net Income](index=8&type=section&id=Reconciliation%20of%20Adjusted%20EBITDA%20to%20Net%20Income) This section reconciles GAAP Net Loss to non-GAAP Adjusted EBITDA for Q3 FY2025, highlighting the impact of the impairment charge and other adjustments Q3 FY2025 Reconciliation of Net Income to Adjusted EBITDA (in millions) | Line Item | Amount | | :--- | :--- | | Net (Loss) Income | $(67.317) | | Impairments | $77.221 | | Depreciation and amortization | $2.318 | | Stock-based compensation | $1.279 | | Provision for income taxes | $(6.727) | | Other Adjustments | $0.663 | | **Adjusted EBITDA** | **$7.437** | [Reconciliation of Adjusted Diluted EPS to Diluted EPS](index=9&type=section&id=Reconciliation%20of%20Adjusted%20Diluted%20EPS%20to%20Diluted%20EPS) This table reconciles GAAP Net Loss to non-GAAP Adjusted Net Income for Q3 FY2025, resulting in a positive Adjusted Diluted EPS despite a GAAP diluted loss Q3 FY2025 Reconciliation of Net Income to Adjusted Net Income (in millions) | Line Item | Amount | | :--- | :--- | | Net (Loss) Income (GAAP) | $(67.317) | | Impairments | $77.221 | | Amortization | $2.165 | | Stock-based compensation | $1.279 | | Tax effect on adjustments | $(5.153) | | Other Adjustments | $0.833 | | **Adjusted Net income (Non-GAAP)** | **$9.028** | Q3 FY2025 EPS vs. Adjusted EPS | Metric | Value | | :--- | :--- | | Diluted EPS (GAAP) | $(3.35) | | Adjusted Diluted EPS (Non-GAAP) | $0.45 | Other Information [About Simulations Plus](index=3&type=section&id=About%20Simulations%20Plus) Simulations Plus provides biosimulation software and consulting services, integrating AI/ML and various modeling approaches for drug discovery and development - The company provides advanced software and consulting services to enhance drug discovery, development, research, clinical trial operations, regulatory submissions, and commercialization[17](index=17&type=chunk) - Solutions integrate artificial intelligence/machine learning (AI/ML) with various pharmacokinetics, biopharmaceutics, and pharmacology/toxicology modeling approaches[17](index=17&type=chunk) [Conference Call Information](index=2&type=section&id=Conference%20Call%20Information) The company will host a conference call and webcast on July 14, 2025, to discuss quarterly performance and forward-looking information - A conference call and webcast will be hosted by the CEO and CFO on July 14, 2025, at 5:00 p.m. Eastern Time to discuss the results[10](index=10&type=chunk) [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This section cautions that the report contains forward-looking statements subject to risks and uncertainties, which could cause actual results to differ significantly - The report contains forward-looking statements involving risks and uncertainties, and **actual future results could differ significantly**[19](index=19&type=chunk) - Key risk factors include the **effectiveness of the new internal structure, maintaining competitive advantages, customer acceptance of new software, and general economic conditions**[19](index=19&type=chunk)

Financial Performance - The company's Q3 2025 revenue reached $20.4 million, a 10% increase compared to $18.5 million in Q3 2024[4] - Adjusted EBITDA margin for Q3 2025 was 37%, up from 30% in Q3 2024[4] - Diluted EPS for Q3 2025 was $(3.35), while adjusted diluted EPS was $0.45[4] - Trailing Twelve Months (TTM) revenue for Q3 2025 was $80.4 million, a 20% increase from $67.0 million in Q3 2024[5] - The company is guiding for total revenue between $76 million and $80 million for fiscal year 2025, representing a growth of 9% to 14%[38] Software Segment - Overall software revenue grew by 6% in Q3 2025 and 16% for TTM[7] - Pro-ficiencyTM software revenue contribution was below expectations[7] - TTM revenue for Pro-ficiencyTM was $4.4 million[7] Services Segment - Overall services revenue grew by 17% in Q3 2025 and 27% for TTM[10] - Total backlog for services was $20.7 million, with over 91% expected to be converted to revenue within 12 months[10] - TTM revenue for Med Comm services was $7.3 million[10]

Core Viewpoint - Wall Street anticipates a year-over-year increase in earnings for Simulations Plus (SLP) due to higher revenues, with a focus on how actual results compare to estimates impacting stock price [1][2] Earnings Expectations - Simulations Plus is expected to report quarterly earnings of $0.26 per share, reflecting a year-over-year increase of +36.8% [3] - Revenues are projected to be $19.5 million, which is a 5.2% increase from the same quarter last year [3] Estimate Revisions - The consensus EPS estimate has been revised down by 22.86% over the last 30 days, indicating a reassessment by analysts [4] - The Most Accurate Estimate for Simulations Plus is lower than the Zacks Consensus Estimate, resulting in an Earnings ESP of -19.23% [12] Earnings Surprise Prediction - The Zacks Earnings ESP model suggests that a positive or negative reading indicates the likely deviation of actual earnings from consensus estimates, with positive readings being more predictive of earnings beats [9][10] - Stocks with a positive Earnings ESP and a Zacks Rank of 1, 2, or 3 have historically produced positive surprises nearly 70% of the time [10] Historical Performance - In the last reported quarter, Simulations Plus exceeded expectations by delivering earnings of $0.31 per share against an expected $0.25, resulting in a surprise of +24.00% [13] - Over the past four quarters, the company has beaten consensus EPS estimates three times [14] Conclusion - Simulations Plus does not currently appear to be a strong candidate for an earnings beat, and investors should consider other factors when making decisions regarding the stock ahead of the earnings release [17]

Group 1 - Simulations Plus (SLP) share price dropped significantly after the company reported preliminary Q3 FY25 results that did not meet expectations [1] - The current weakness in Simulations Plus is attributed to soft biopharma market conditions and the company's relatively large services business [1] Group 2 - Narweena, an asset manager led by Richard Durant, focuses on identifying market dislocations due to misunderstandings of long-term business prospects [1] - Narweena aims to achieve excess risk-adjusted returns by targeting businesses with secular growth opportunities in markets with barriers to entry [1] - The research process at Narweena emphasizes company and industry fundamentals to uncover unique insights [1] Group 3 - Narweena has a high risk appetite and a long-term investment horizon, seeking deeply undervalued stocks, particularly in smaller cap markets [1] - The firm believes that an aging population with low growth and stagnating productivity will create new investment opportunities [1] - Many industries may face stagnation or secular decline, which could paradoxically enhance business performance due to reduced competition [1] Group 4 - The economic landscape is increasingly characterized by asset-light businesses, leading to a declining need for infrastructure investments [1] - A large pool of capital is pursuing a limited set of investment opportunities, resulting in rising asset prices and compressed risk premia over time [1]

Core Viewpoint - Simulations Plus Inc has significantly lowered its fiscal 2025 sales outlook, leading to a sharp decline in its stock price, reflecting market uncertainties and operational challenges [1][2]. Group 1: Sales Outlook and Financial Performance - The company expects third-quarter sales to be between $19 million and $20 million, which is below the consensus estimate of $22.78 million [1]. - The fiscal 2025 sales forecast has been revised down to $76 million-$80 million from a previous guidance of $90 million-$93 million, against a consensus of $90.26 million [1][5]. Group 2: Market Conditions and Operational Challenges - CEO Shawn O'Connor highlighted that market uncertainties regarding future funding, drug pricing, and potential tariffs are causing significant challenges for pharmaceutical and biotech clients, leading to budget cuts, project cancellations, and delays [2]. - The demand for services has been more sensitive to market volatility, resulting in performance below expectations, although the software segment remains resilient [3]. Group 3: Workforce and Restructuring - The company has reduced its workforce by approximately 23 employees, which is about 10% of its full-time staff, and expects to incur around $0.7 million in restructuring charges [4]. - The decision to cut guidance was unexpected and larger than anticipated, raising concerns about the impact on margins and the outlook for fiscal 2026 [5]. Group 4: Stock Performance - Following the announcement, Simulations Plus stock fell by 23.2%, trading at $20.30 [6].

Core Insights - Simulations Plus, Inc. (SLP) has announced preliminary revenue results for Q3 fiscal 2025, expecting revenues between $19 million and $20 million [1] - The full-year revenue guidance for fiscal 2025 has been revised to a range of $76 million to $80 million, down from the previous projection of $90 million to $93 million [2][8] Revenue and Financial Performance - The company anticipates third-quarter revenues to be between $19 million and $20 million [1] - Full-year fiscal 2025 revenues are now projected at $76 million to $80 million, a significant decrease from earlier estimates [2][8] Market Challenges - Management cited growing market uncertainties, including shifting drug pricing policies, potential tariff implications, and constrained funding, as headwinds affecting pharmaceutical and biotech clients [3] - These challenges have resulted in tighter budgets, project delays, and cancellations, particularly impacting the demand for services [3] Strategic Reorganization - In response to market challenges, Simulations Plus is transitioning to a functionally driven operating model from a business unit structure [4] - This strategic reorganization aims to enhance client engagement and improve sales and marketing effectiveness [4] - The change is part of a multi-year transformation strategy focused on streamlining operations and fostering collaboration [4] Future Outlook - The company believes the new structure will enhance operational efficiency and position it for long-term profitable growth [5] - Simulations Plus remains optimistic about the future of predictive analytics in biosimulation and clinical operations [5] Product Development - Recently, the company launched DILIsym 11, an advancement in its quantitative systems toxicology (QST) platform, aimed at improving drug safety and patient outcomes [6]

Core Insights - Simulations Plus, Inc. has launched DILIsym 11, enhancing its quantitative systems toxicology platform for improved drug-induced liver injury prediction, particularly with pediatric representation and an advanced T-cell model [1][2][3] Group 1: Product Enhancements - DILIsym 11 introduces significant enhancements, including pediatric modeling to assess liver toxicity risk in children, which is a notable advancement in predictive toxicology [3][5] - The new T-cell module offers deeper insights into CD8+ T-cell-mediated liver damage, alongside improved simulations for bile acid-related and cholestatic liver injuries [5][6] - The platform is recognized as a regulatory-grade simulation tool, having been reviewed by the FDA's DILI team, which underscores its clinical relevance [4][6] Group 2: Financial Performance - Simulations Plus reported a 23% year-over-year revenue increase to $22.4 million, driven by demand for its software and services, with contributions from the recently acquired Pro-ficiency business units [7][9] - The company anticipates revenues between $90 million and $93 million for fiscal 2025, reflecting a 28-33% increase from fiscal 2024, with Pro-ficiency expected to add $15-$18 million [9] Group 3: Market Context - Despite the positive performance of Simulations Plus, the broader biopharmaceutical sector faces financial challenges, impacting research and development investments [8] - The company is positioned to gain traction in the market as it continues to innovate in biosimulation and predictive modeling, which is critical for improving drug safety [6][8]

Group 1 - Simulations Plus, Inc. (NASDAQ: SLP) is a software company specializing in AI-based modeling and simulation tools aimed at accelerating pharmaceutical research for drug discovery and optimization [1] - The company utilizes pharmacology data to train its modeling systems, enhancing the efficiency of drug development processes [1]

Group 1 - Simulations Plus, Inc. (NASDAQ: SLP) is a specialized provider of biosimulation and predictive modeling software, establishing a distinctive position at the intersection of pharmaceutical research and advanced computational science [1] - The mission of Grassroots Trading focuses on providing objective and unbiased research, particularly on small- to mid-cap companies, while also identifying opportunities in larger companies [1]