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]

Industry Overview - The U.S. Business Services Sector is supported by strong domestic economic fundamentals, encompassing companies that provide various services such as consulting, staffing, financial transactions, outsourcing, advertising, waste removal, building maintenance, technology services, and auction/valuation services [1] - The sector is mature with stable demand for services, and revenues, income, and cash flows are above pre-pandemic levels. It ranks in the top 25% of the Zacks Sector Rank, indicating expected outperformance over the next three to six months [2] Stock Recommendations - Five business services stocks with favorable Zacks Rank that have shown double-digit returns in the past three months are Duolingo Inc. (DUOL), Cintas Corp. (CTAS), Stantec Inc. (STN), Thomson Reuters Corp. (TRI), and FirstCash Holdings Inc. (FCFS). Each stock carries a Zacks Rank 2 (Buy) [3] Company Highlights Duolingo Inc. (DUOL) - Duolingo operates a mobile learning platform offering courses in 40 languages and provides a digital language proficiency assessment exam [6] - Expected revenue and earnings growth rates for the current year are 33.4% and 55.3%, respectively, with a 10.2% improvement in the Zacks Consensus Estimate for current-year earnings over the last 60 days [7][9] Cintas Corp. (CTAS) - Cintas is benefiting from solid momentum across its segments, with product penetration into existing customers aiding its Uniform Rental and Facility Services segment [8] - Expected revenue and earnings growth rates for the current year are 7% and 10.8%, respectively, with a 1.9% improvement in the Zacks Consensus Estimate for current-year earnings over the last 60 days [10] Stantec Inc. (STN) - Stantec provides professional consulting services in various fields including planning, engineering, architecture, and environmental sciences [11][12] - Expected revenue and earnings growth rates for the current year are 11.1% and 19.5%, respectively, with a 3.2% improvement in the Zacks Consensus Estimate for current-year earnings over the last 30 days [13] Thomson Reuters Corp. (TRI) - Thomson Reuters operates as a content and technology company across multiple regions, providing value-added information and technology in law, tax, accounting, and other fields [14][15] - Expected revenue and earnings growth rates for the current year are 3.2% and 4.2%, respectively, with a 1.3% improvement in the Zacks Consensus Estimate for current-year earnings over the last 60 days [15] FirstCash Holdings Inc. (FCFS) - FirstCash operates retail pawn stores in the U.S., Mexico, and Latin America, providing pawn loans and retail payment solutions [16][17] - Expected revenue and earnings growth rates for the current year are -0.2% and 17.3%, respectively, with a 2.7% improvement in the Zacks Consensus Estimate for current-year earnings over the last 60 days [18]