Simulations Plus Q4 2025: Contradictions Emerge on Renewal Rates, AI Pricing, FDA Impact, and Biotech Funding

Date of Call: December 1, 2025

Financials Results

• Revenue: $17.5M in Q4, down 6% YOY; FY2025 $79.2M, up 13% YOY
• EPS: GAAP diluted loss $3.22 for FY2025 (includes $77.2M noncash impairment); adjusted diluted EPS $1.03, up from $0.95 prior year (≈+8% YOY)
• Gross Margin: Total gross margin FY2025 58% (software 79%, services 30%) vs FY2024 62% (software 84%, services 30%); decline driven by higher amortization of developed technology and capitalized software amortization
• Operating Margin: Adjusted EBITDA $22.0M (28% of revenue) in FY2025 vs $20.3M (29% of revenue) in FY2024; adjusted EBITDA margin guidance 26%–30% for FY2026

Guidance:

• Total revenue FY2026 guided to $79M–$82M (0%–4% YoY)
• Software mix 57%–62%; adjusted diluted EPS $1.03–$1.10; adjusted EBITDA margin 26%–30%
• Q1 revenue expected ~3%–5% below prior year
• FY2026 effective tax rate expected 12%–14%
• Guidance assumes a stable operating environment similar to end of FY2025; upside if market conditions improve

Business Commentary:

* Revenue and Earnings Performance: - Simulations Plus reported fiscal year 2025 total revenue at $79.2 million, up 13% year-on-year. - The company's adjusted EPS grew by 8%, with adjusted EBITDA increasing by 8%. - The growth was attributed to strong execution across the business despite market volatility and strategic realignment.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted execution and resilience: "Revenue grew 13%, adjusted EBITDA grew 8% and adjusted EPS grew 8%" and described a strategic reset to a unified operating model and accelerating demand: "momentum behind biosimulation continues to accelerate," positioning the company to capitalize on cloud and AI-driven product roadmap.

Q&A:

• Question from Jeffrey Garro (Stephens Inc.): Maybe start by asking about the demand environment. I was hoping you could give us an update on recent trends and some of the underlying factors that can translate to bookings and revenue, like RFP volumes pipeline development and SLPs win rate?
  Response: Modest uptick in biotech funding and mostly positive large pharma signals; proposal activity and budgeting momentum improving, but management remains cautious given potential market surprises.

• Question from Jeffrey Garro (Stephens Inc.): Feedback for the GastroPlus release that's been infused with some AI capabilities and what that might mean for that key product as well as demand for AI infusions and other products?
  Response: Early client response positive; clients engaged in development, adoption aligns with their cloud/AI investments, and demand is strong though installation/adoption will follow client timetables.

• Question from Matthew Hewitt (Craig-Hallum Capital Group LLC): Besides MFN pricing, tariffs and soft funding, is there anything else that would result in large pharma being cautious or are those the main drivers to see increased spend?
  Response: Multiple client-specific factors (program status, patent cliffs) influence caution; sustained confidence requires several quarters without disruptive surprises and positive budgeting cycles.

• Question from Matthew Hewitt (Craig-Hallum Capital Group LLC): If bookings and backlog ramp, do you have the headcount to support higher revenue or would you need to backfill roles given reductions over the past two years?
  Response: Software is scalable with no immediate hiring need; services capacity is adequate for guidance but can be ramped relatively quickly if demand accelerates.

• Question from Scott Schoenhaus (KeyBanc Capital Markets Inc.): Any changes under the reiterated guidance and can you parse the assumptions behind Q1 guidance?
  Response: No material changes since October; guidance assumptions unchanged—Q1 weakness (3%–5% below prior year) driven by seasonality and tougher Pro‑ficiency/MedComm comps.

• Question from Scott Schoenhaus (KeyBanc Capital Markets Inc.): Does guidance assume any biotech end‑market recovery and how are cancellations baked in; what would cause you to moderate expectations?
  Response: Guidance does not assume a significant biotech funding rebound (that would be upside); forecasting includes discount factors for cancellations/consolidations and management is cautious but would moderate expectations if large new cancellations emerge.

• Question from Christine Rains (William Blair & Company L.L.C.): Renewal rate remains below prior years; can you provide context on account‑level renewals in Q4 and when renewals might return to ~90%?
  Response: Renewal on fee dipped to mid/high 80s due to 3–4 large consolidations and module‑level scrutiny; expect improvement toward ~90% as consolidation impacts subside and annual price increases flow through.

• Question from Christine Rains (William Blair & Company L.L.C.): What is baked into your EBIT/EBITDA margin guide for gross margins (software vs services) and the expected EBITDA cadence across FY2026?
  Response: Guide assumes $4M annualized cost reduction benefit and seasonality; adjusted EBITDA guide of 26%–30% reflects modest improvement, while reaching targeted ~35% requires sustained >10% top‑line growth.

• Question from David Larsen (BTIG, LLC): Can you talk about the Pro‑ficiency asset—was the ~63% decline in Q4 on the software or service side and what's driving it?
  Response: The ~63% decline was in Pro‑ficiency software due to a slowdown in clinical trial starts; MedComm services grew (~70% q/q) and overall MedComm remains a growth area.

• Question from David Larsen (BTIG, LLC): What percentage of Pro‑ficiency revenue is software?
  Response: Roughly a 40% software / 60% services split (management estimate).

• Question from David Larsen (BTIG, LLC): For the Q1 revenue guide, how much visibility do you have into booked deals and what percentage of software/service revenue is under contract?
  Response: Management has good visibility into Q1 and is tracking to guidance; seasonality and comparable dynamics drive quarterly patterns and bookings/backlog are sufficient to support the guide as issued.

• Question from Constantine Davides (Citizens JMP Securities, LLC): Does your 2026 guidance contemplate an extension of recent renewal trends in the low to mid‑80s?
  Response: Yes; guidance assumes consolidation effects and the year's more aggressive price increases are baked into renewal/revenue assumptions.

• Question from Constantine Davides (Citizens JMP Securities, LLC): How should we think about cash flow in FY2026, and how interested are you in acquisitions across core markets or beyond?
  Response: Cash flow remains robust and seasonal tied to renewals; company remains interested in acquisitions in biosimulation and clinical ops and '26 may present opportunities after integrating Pro‑ficiency.

• Question from Brendan Smith (TD Cowen): How should we think about pricing flexibility and is pricing upside from AI rollouts baked into the '26 guide versus customer adds/expansions?
  Response: Management implemented more aggressive price increases tied to AI/cloud upgrades; product pricing and module monetization are baked in but conservatively modeled (yield and pacing applied); no material service price uplift assumed given competitive market.

Contradiction Point 1

Renewal Rates and Market Uncertainties

It involves the company's expectations regarding renewal rates and market uncertainties, which are crucial for understanding the company's financial performance and future outlook.

What are the recent demand trends and underlying factors driving bookings and revenue growth? How is the release of GastroPlus AI capabilities affecting client discussions? - Jeffrey Garro(Stephens Inc.)

2025Q4: There is initial positive feedback on the GastroPlus AI release. Clients are evolving their internal IT infrastructure to align with cloud and AI capabilities that Simulations Plus is offering. There is great excitement about staying ahead of the curve in terms of functionality to support AI-driven workflows and data management. - Shawn O'Connor(CEO)

What is the current software renewal rate, and what factors are affecting renewals? - Christine Rains(William Blair & Company L.L.C.)

20251202-2025 Q4: Renewal rates were impacted by consolidations and client scrutiny of module configurations, resulting in lower renewal fees. Absence of consolidations and price increases should improve renewal rates and help them return to the 90% range. - Shawn O'Connor(CEO)

Contradiction Point 2

AI Capability Rollouts and Pricing Strategy

It involves the company's approach to AI capabilities rollouts and pricing strategy, which are critical for understanding the company's competitive positioning and revenue growth potential.

How does pricing flexibility impact growth strategies, especially during AI capability rollouts? - Brendan Smith(TD Cowen)

2025Q4: Pricing is more aggressive to reflect AI enhancements in the platforms. The pricing increase is justified by AI-driven efficiency for clients but is discounted due to potential yield and competitive market conditions. Service-side pricing remains competitive. - Shawn O'Connor(CEO)

How should we think about pricing flexibility as AI capabilities roll out? - Brendan Smith(TD Cowen)

20251202-2025 Q4: Pricing is more aggressive with AI and cloud capabilities. Some price increase is baked into guidance but is discounted and paced. Service side pricing remains competitive. - Shawn O'Connor(CEO)

Contradiction Point 3

Software Renewal Rates and Market Conditions

It involves differing explanations for software renewal rates and market conditions, which are crucial for understanding revenue stability and growth expectations.

Why are software renewals below previous years, and when will they return to the 90% range? - Christine Rains (William Blair & Company L.L.C.)

2025Q4: Renewal rates were impacted by consolidations and client scrutiny of module configurations, resulting in lower renewal fees. Absence of consolidations and price increases should improve renewal rates and help them return to the 90% range. - Shawn O'Connor(CEO)

What caused the decline in software renewal rates, and is there a risk of further declines? - Scott Anthony Schoenhaus (KeyBanc Capital Markets)

2025Q3: The decline is due to consolidations in client accounts impacting renewal sizes. While consolidations are ongoing, the historical renewal rate of 90-95% is expected to be maintained in the long term. - Shawn M. O'Connor(CEO)

Contradiction Point 4

Impact of FDA Guidance on Business Pick-up

It highlights differing opinions on the impact of FDA guidance on business pick-up and growth expectations.

What are the recent demand trends and factors driving bookings and revenue? How is GastroPlus's AI release affecting client discussions? - Jeffrey Garro (Stephens Inc.)

2025Q4: The uptick in biotech funding is positive, with modest improvements in large pharma's visibility and proposal activity. Budgeting cycles show momentum, but cautious optimism remains due to market uncertainties. - Shawn O'Connor(CEO)

Have you seen business improvement since the April 10 FDA guidance, and do you expect growth to resume in fiscal 2026? - Matthew Gregory Hewitt (Craig-Hallum Capital Group)

2025Q3: The FDA's guidance is a strategic momentum for drug development using modeling and simulation. However, its impact on quarterly revenue is uncertain, with ongoing market conditions requiring patience for substantial changes. - Shawn M. O'Connor(CEO)

Contradiction Point 5

Biotech Funding and Market Environment

This contradiction highlights differing perspectives on the biotech funding environment and its impact on the company's growth prospects and revenue expectations.

What are the recent trends in demand and factors driving bookings and revenue? How is GastroPlus's AI release impacting client discussions? - Jeffrey Garro (Stephens Inc.)

2025Q4: The uptick in biotech funding is positive, with modest improvements in large pharma's visibility and proposal activity. Budgeting cycles show momentum, but cautious optimism remains due to market uncertainties. - Shawn O'Connor(CEO)

Biotech funding challenges remain. Can you discuss next year's guidance and Immunometrics' impact? - Fran├žois Brisebois (Oppenheimer)

2023Q4: Our guidance is based on a status quo market environment with cautious optimism. We expect revenue growth of 10% to 15%. - Shawn O'Connor(CEO)