Simulations Plus Q3 2025: Unpacking Contradictions in Software Renewals, Revenue Visibility, and AI Strategies

Software renewal rates, service revenue visibility, AI investment and product development, software renewal rates and client consolidations, market growth and revenue performance are the key contradictions discussed in Simulations Plus, Inc.'s latest 2025Q3 earnings call.



Revenue and Acquisition Impact:
- Simulations Plus reported revenue growth of 10% to $20.4 million in Q3, including a $2.4 million contribution from the Pro-ficiency acquisition.
- However, on an organic basis, revenue declined 4%, primarily due to lower QSP/QST software revenue and decreased biosimulation services revenue.
- The Pro-ficiency acquisition doubled the company's total addressable market and is positioned to drive future growth, but its current performance has been impacted by headwinds affecting clinical trial initiations and commercialization budgets.

Profitability and Impairment:
- The company reported a diluted EPS loss of $3.35, including a noncash impairment expense of $77.2 million related to prior acquisitions.
- Adjusted diluted EPS increased to $0.45 from $0.27 last year, reflecting better profitability despite lower organic revenue growth.
- The impairment expense was a result of aligning book values with current market values, particularly for the Pro-ficiency platform and Medical Communications services.

Software and Services Performance:
- Software revenue grew 6% in the quarter, with significant contributions from ADMET Predictor and GastroPlus.
- Services revenue increased by 17%, primarily driven by Medical Communications services, but PBPK and PK/PD services saw declines of 10% and 9% year-over-year, respectively.
- The decline in services revenue was attributed to cost constraints implemented by clients and delays in contracted projects, affecting near-term project flow.

AI Initiatives and Market Outlook:
- Simulations Plus is investing in AI-driven initiatives, including AI integrations into products like GastroPlus, anticipated later this year.
- The company believes AI enhancements will provide a competitive advantage and enrich its product ecosystem, positioning it for sustained growth.
- Despite facing headwinds, the company remains optimistic about long-term biosimulation growth and the use of AI predictive analytics in clinical operations, supported by regulatory momentum favoring in silico methods.