Simulations Plus(US:SLP)2025-12-01 23:02Financial Data and Key Metrics Changes - Revenue for fiscal year 2025 increased by 13% to $79.2 million, while total revenue for the fourth quarter decreased by 6% to $17.5 million [4][10] - Adjusted EBITDA grew by 8%, and adjusted EPS also increased by 8% for the fiscal year [4] - Total gross margin for the fiscal year was 58%, down from 62% in the prior year, with software gross margin decreasing from 84% to 79% [13][15] Business Line Data and Key Metrics Changes - Software revenue decreased by 9% in Q4, representing 52% of total revenue, while services revenue decreased by 3%, representing 48% [10] - For the fiscal year, software revenue increased by 12%, accounting for 58% of total revenue, and services revenue increased by 15%, accounting for 42% [10] - Specific product performance: Admet Predictor declined by 10% in Q4 but grew by 5% for the fiscal year; GastroPlus declined by 3% in Q4 but grew by 1% for the fiscal year; Monolith Suite grew by 3% in Q4 and 14% for the fiscal year [11] Market Data and Key Metrics Changes - The company noted early signs of stabilization in the market, with large pharma gaining clearer visibility into pricing frameworks and biotech funding improving modestly [5][6] - Proposal activity and conference engagement have strengthened, indicating a more confident budgeting cycle among clients [5] Company Strategy and Development Direction - The company completed a strategic reset in fiscal 2025, transitioning to a unified operating model that aligns product and technology with client-focused services [4] - The focus for fiscal 2026 includes enhancing biosimulation capabilities, integrating AI into workflows, and developing a connected ecosystem of products [8][9] - The company aims to support clients through discovery, clinical development, and commercialization with a modern, interoperable biosimulation ecosystem [8][9] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the future, noting that while uncertainty persists, there are positive trends in biotech funding and client budgeting [5][6] - The company anticipates a stable operating environment for fiscal 2026, with guidance for total revenue between $79 million and $82 million, reflecting year-over-year growth of 0%-4% [16] Other Important Information - The company ended the fiscal year with $32.4 million in cash and short-term investments, remaining well-capitalized with no debt [15][16] - The effective tax rate for the fiscal year was 7%, with expectations for fiscal 2026 to be in the range of 12%-14% [15] Q&A Session Summary Question: Update on demand environment and trends - Management noted an uptick in biotech funding and positive discussions with clients regarding proposals and budgeting for the next year [21][22] Question: Feedback on GastroPlus release with AI capabilities - Initial responses to the AI-infused GastroPlus have been positive, with clients eager to leverage AI capabilities [24][25] Question: Factors affecting large pharma spending - Management indicated that while there are positive trends, caution remains due to individual client circumstances and the overall budgeting cycle [31][32] Question: Guidance assumptions and potential biotech recovery - The guidance assumes continued cautious optimism in biotech funding but does not project a significant uptick in revenue from this sector for 2026 [43][44] Question: Renewal rates and factors affecting them - Renewal rates have been impacted by client consolidations and budget scrutiny, but management expects improvement as clients have already reviewed their module needs [52][54] Question: Proficiency asset performance - Proficiency software revenue declined by 63% in Q4, while Med-Com services grew by 70%, indicating mixed performance post-acquisition [62][63] Question: Cash flow outlook and acquisition interest - Cash flow remains robust, and the company is actively looking for acquisition opportunities in biosimulation and clinical operations [72][73] Question: Pricing flexibility and plans for 2026 - The company plans to implement more aggressive pricing due to new AI capabilities, with expectations for a positive impact on renewal rates [76][77]