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]