Simulations Plus Sees Weaker Demand Persist, Outlook Softens

Core Insights - Simulations Plus Inc. reported a 10% year-over-year increase in sales to $20.4 million, but this was below the consensus estimate of $20.9 million [1] - The company experienced a significant net loss of $67.3 million, primarily due to a non-cash impairment charge of $77.2 million, contrasting with a net income of $3.1 million in the prior year [3] - Adjusted earnings per share increased to 45 cents, up from 27 cents a year ago, despite the revenue miss [2] Financial Performance - Sales for the third quarter reached $20.4 million, a 10% increase year-over-year, but below the consensus estimate [1] - Software revenue increased by 6% to $12.6 million, while services revenue rose by 17% to $7.7 million [2] - Gross profit was $13.0 million, achieving a 64% margin [2] - Adjusted EBITDA was $7.4 million, representing 37% of total revenue, an increase from $5.6 million (30% of total revenue) in the same period last year [3] Guidance and Outlook - The fiscal 2025 adjusted earnings guidance was revised down to $0.93 to $1.06 from $1.07 to $1.20 [4] - Sales forecast for fiscal 2025 was adjusted to $76 million to $80 million, down from $90 million to $93 million, and below the consensus of $82.9 million [4] - The anticipated adjusted EBITDA margin for fiscal 2025 was revised to between 23% and 27%, down from 31% to 33% [5] Market Conditions - Analysts noted ongoing cautious spending by biopharma clients due to uncertainties surrounding funding, drug pricing, and potential tariffs, leading to budget cuts and project cancellations [6] - Despite some resilience in the software business, signs of potential softening were observed as the company heads into fiscal 2026 [7] - KeyBanc downgraded Simulations Plus from Overweight to Sector Weight, citing challenges due to customer concentration and biotech exposure [7] Stock Performance - Following the earnings report, SLP stock declined by 25% to $13.10 [8]