Cambios en las narrativas en las llamadas de resultados de Simulations Plus para el cuarto trimestre de 2025 y el primer trimestre de 2026: contradicciones en los ingresos por software, tasas de renovación y estrategia de precios relacionada con la inteligencia artificial.

Date of Call: Month DD, YYYY

Financials Results

• Revenue: $18.4M, down 3% YOY
• EPS: $0.13 adjusted EPS
• Gross Margin: 59%, up from 54% in the prior year

Guidance:

• Total revenue for FY2026 expected between $79M and $82M (0% to 4% YOY growth).
• Software mix expected between 57% and 62%.
• Adjusted EBITDA margin expected between 26% and 30%.
• Adjusted diluted EPS expected between $1.03 and $1.10.
• Q2 revenue anticipated to be approximately $21M to $22M.

Business Commentary:

* Revenue and Market Conditions: - Simulations Plus reported a revenue decrease of 3% to $18.4 million for the first quarter of fiscal 2026. - Despite the decrease, the company met its guidance, with a noted uptick in client spending towards the end of the quarter. - The slight downward trend in revenue was expected and aligns with ongoing market conditions and client budget constraints.

• Services Segment Growth:
• The company's services revenue increased 16%, representing 52% of total revenue.
• This growth was primarily driven by strong performance in the MEDCOM business and an uptick in biosimulation services.

• The increase in service revenue is seen as a leading indicator for potential future growth in software demand as client budgets open up.

• Software Revenue Dynamics:

• Software revenue decreased 17% and represented 48% of total revenue.
• Discovery products like ADMET Predictor saw a 3% increase, while development products like GastroPlus and MonolixSuite declined by 6% on a trailing 12-month basis.

• The decline in software revenue was impacted by market conditions, client consolidations, and the timing of QSP model license sales.

• Gross Margin Improvement:

• The company reported a total gross margin of 59%, up from 54% in the prior period.
• The improvement was primarily due to lower clinical operations revenue and reorganization of services personnel.

• The increase in software gross margin reflects the lower proportion of lower-margin clinical ops revenue.

• Strategic Focus and Future Outlook:

• Simulations Plus is focusing on integrating its product ecosystem with validated science, cloud-scale performance, and AI.
• The company aims to enhance its offerings through AI-driven services and tools, aligning with industry trends and customer needs.
• The strategic initiatives are expected to drive future growth and improve client offerings, with more details to be shared at an upcoming Investor Day.

Sentiment Analysis:

Overall Tone: Positive

• Management expressed optimism about a stabilizing macro environment, noting 'positive trends' and an 'uptick in spending' leading to strong service performance. The CEO stated, 'we're positioned to support our clients with greater speed, consistency and interoperability than ever before,' and highlighted 'very positive impact' from improved client budgets.

Q&A:

• Question from Matthew Hewitt (Craig-Hallum): Could you provide more color on how positive macro factors (e.g., MFN agreements, lower tariff risk) are impacting customer budgets and allocation towards modeling/simulation?
  Response: Positive macro developments stabilized client outlooks, leading to increased proposal activity and accelerated year-end spending, resulting in strong service revenue and optimism about a potential opening in the constrained spending environment.

• Question from Christine Rains (William Blair): Given strong service performance and soft software, what is the expected software/service mix cadence for the remaining quarters and what will catalyze a software step-up?
  Response: No change to full-year software/service mix guidance (57%–62% software). Software typically strengthens in Q2 and Q3 due to renewal seasonality, and service spending is seen as a leading indicator for overall budget easing.

• Question from Scott Schoenhaus (KeyBanc Capital Markets): Given improved environment and backlog, should we expect a less extreme quarterly cadence in guidance?
  Response: Revenue growth is backloaded in percentage terms due to software comps (e.g., Proficiency peak in H1 FY25), but absolute dollar growth is more even. Year-over-year software growth percentages will step up in H2 as the comp base lowers.

• Question from Jeffrey Garro (Stephens): Why is services a leading indicator for software demand, and does this apply to the new integrated product vision?
  Response: Services spending is more discretionary; as client budgets open up, service projects are initiated quickly, and software upsells follow as modeling departments expand, making service activity a leading indicator for broader budget health.

• Question from David Larsen (BTIG): What drove the strength in commercialization services (MEDCOM), and what was the reason for the large decline in clinical operations software?
  Response: MEDCOM strength was due to a recovery in medical communications spending after budget pressures in H2 FY25. The clinical ops software (Proficiency training platform) decline is attributed to clinical trial start-up challenges, with the Q1 result in line with expectations.

• Question from Brendan Smith (TD Cowen): How is AI integration with the core platform progressing, and how does it affect renewals/pricing?
  Response: Initial AI features in GastroPlus received favorable customer response. The company is more aggressive in pricing increases as AI is embedded in the base model, with future monetization through modules and new products.

Contradiction Point 1

Software Revenue Performance and Outlook

This involves a direct contradiction in the characterization of QSP software revenue performance and the associated forward guidance. In Q4 2025, management explicitly guided for a significant year-over-year decline in software revenue for Q1 2026. However, in the Q1 2026 call, the same period's revenue is described as being "in line with expectations" despite acknowledging a tough comparison. This shift from anticipating a decline to reporting performance as acceptable represents a change in financial forecast and outlook.

What has changed in the FY26 guidance, particularly regarding services and software headwinds, and can you explain the Q1 revenue guidance? - Scott Schoenhaus (KeyBanc Capital Markets)

20251202-2025 Q4: Expect 3–5% year-over-year revenue decline in Q1 due to normal seasonality and tough comps from high Proficiency revenue in Q1 FY25. - Shawn O’Connor(CEO)

Can you provide details on the QSP product's performance? Was the weaker performance this quarter a one-time occurrence or related to waiting for recent FDA guidance? - Matthew Hewitt (Craig-Hallum)

20260109-2026 Q1: QSP software revenue was in line with expectations. The first quarter of last year had a very strong quarter with multiple model sales, making this year’s quarter a difficult comparison. - Shawn O’Connor(CEO)

Contradiction Point 2

Renewal Rate Expectations and Outlook

This reflects a change in the narrative around a key operational metric (software renewal rate). In Q4 2025, management indicated the rate had "dropped" below the historical 90%+ level and expressed an expectation for improvement. By Q1 2026, the reported rate (88%) is described as "relatively strong" and "in line with expectations," without acknowledging the prior decline or the need for recovery, which alters the implied trajectory and current health of this critical metric.

What caused the decline in software renewal rates and when is the rate expected to return to ~90%? - Christine Rains (William Blair, on for Max Smock)

20251202-2025 Q4: Renewal rate dropped... Expect renewal rates to improve. - Shawn O’Connor(CEO)

Was the 88% fee retention rate in line with expectations? - David Larsen (BTIG)

20260109-2026 Q1: The renewal rate has been around this level recently. Historically, it has been 90%+. ... Overall, it is considered relatively strong. - Shawn O’Connor(CEO)

Contradiction Point 3

Pricing Strategy and AI Integration

This involves a shift in the company's communicated pricing posture and strategy related to its AI offering. In Q4 2025, pricing increases tied to new AI/cloud capabilities were described as "aggressive" but noted as being "discounted" in practice, implying a tempered approach. In Q1 2026, the strategy is presented as being "more aggressive" in pricing increases as AI is embedded, without mentioning any discounting, suggesting a more confident and potentially less flexible pricing stance.

How can we assess pricing flexibility, AI-driven pricing strategies, and growth levers beyond the 4% guidance? - Brendan Smith (TD Cowen)

20251202-2025 Q4: More aggressive price increases tied to new AI and cloud platform capabilities... aggressive increases are baked in but discounted (not all customers accept full increases). - Shawn O’Connor(CEO)

How is the initial AI integration with the core platform progressing, have customers provided feedback, and how does this affect license renewals and pricing? - Brendan Smith (TD Cowen)

20260109-2026 Q1: The company is more aggressive in pricing increases as AI is embedded in the base platform, with future monetization also planned through modules and new products. - Shawn O’Connor(CEO)

Contradiction Point 4

Software Renewal and Client Consolidation Headwinds

This highlights a change in the characterization of an ongoing business risk. In Q4 2025, client consolidation was explicitly cited as an "ongoing" headwind to software renewals, with a specific large cancellation event noted. In Q1 2026, while consolidation is acknowledged as a headwind, the guidance for FY26 states there is "no significant forewarning of major client acquisitions," which contradicts the prior assertion of ongoing and impactful activity.

Does the guidance reflect a biotech recovery? What factors would moderate cancellation expectations? - Scott Schoenhaus (KeyBanc Capital Markets)

20251202-2025 Q4: Ongoing but no major known events imminent... A large cancellation in H2 FY25 was handled well. - Shawn O’Connor(CEO)

With the improving M&A environment, did consolidation headwinds intensify in Q1? What is the typical impact compared to what is baked into the 2026 guide? - Christine Rains (William Blair)

20260109-2026 Q1: Consolidation among larger clients is a headwind to software renewals... For fiscal 2026, there is no significant forewarning of major client acquisitions that would impact renewals. - Shawn O’Connor(CEO)

Contradiction Point 5

Renewal Rate Trends and Outlook

This presents a contradiction in the expected trajectory of the software renewal rate. The Q4 2025 guidance suggested an expectation of improvement, while the Q1 2026 commentary implies the rate has stabilized at a lower level without clear signs of a near-term rebound. This shift from an expectation of recovery to an acknowledgment of a new normal impacts forecasts for a key revenue driver.

Can you explain the Q4 software renewal rate (83% on a fee basis) and when it might return to 90%? - Christine Rains (William Blair & Company L.L.C.)

2025Q4: The renewal rate decline was driven by a few impactful client consolidations... Improvement is expected as: 1) Consolidations subside, 2) Clients have already done their module review once, and 3) More aggressive annual price increases are implemented. - Shawn O’Connor(CEO)

Was the 88% fee retention rate in line with expectations? - David Larsen (BTIG)

20260109-2026 Q1: The renewal rate has been around this level recently. Historically, it has been 90%+. ... Overall, it is considered relatively strong. - Shawn O’Connor(CEO)