Simulations Plus, Inc. (NASDAQ:SLP) Q1 2026 Earnings Call Transcript

Simulations Plus, Inc. (NASDAQ:SLP) Q1 2026 Earnings Call Transcript January 8, 2026

Simulations Plus, Inc. misses on earnings expectations. Reported EPS is $0.13 EPS, expectations were $0.18.

Operator: Answer session will follow the formal presentation. As a reminder, this conference call is being recorded. It is now my pleasure to introduce Lisa Fortuna, from Financial Profiles. Miss Fortuna, please go ahead. Good afternoon, everyone. Welcome to the Simulations Plus Fourth Quarter Fiscal Year 2025 Financial Results Conference Call.

Lisa Fortuna: With me today are Shawn O’Connor, Chief Executive Officer, and William Frederick, Chief Financial Officer of Simulations Plus. Please note that we updated our quarterly earnings presentation which will serve as a supplement to today’s prepared remarks. You can access the presentation on our Investor Relations website at simulationsplus.com. After management’s commentary, we will open the call for questions. As a reminder, the information discussed today may include forward-looking statements that involve risks and uncertainties. Words like believe, expect, and anticipate refer to our best estimates as of this call and actual future results could differ significantly from these statements. Further information on the company’s risk factors is contained in the company’s quarterly and annual reports and filed with the Securities and Exchange Commission.

In the remarks or responses to questions, management may mention some non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to those most directly comparable GAAP measures are available in the most recent earnings release available on the company’s website. Please refer to the reconciliation tables in the accompanying materials for additional With that, I’ll turn the call over to Shawn O’Connor. Please go ahead.

Shawn O’Connor: Thank you, Lisa, and welcome, everyone. We closed fiscal 2025 with strong execution across the business. Delivering on the full-year guidance we set in June. Revenue grew 13%, adjusted EBITDA grew 8%, and adjusted EPS grew 8%. Demonstrating resilience and operational discipline a year marked by significant market volatility. Importantly, 2025 was also a strategic reset for Simulations Plus. We completed our transition to a unified operating model aligning product and technology scientific R&D, strategic consulting services, and business development. Into a single client-focused, functionally oriented organization structure. This shift is already improving how we prioritize build, and deliver. For our customers, and positions us to move faster for the opportunities ahead.

The external environment remained challenging throughout the year. Client budgets were pressured by broader pharmaceutical headwinds, including the threat of tariffs, and most favored nation pricing implementation, which created real disruption starting midyear. As we move toward calendar 2026, we’re seeing early signs of stabilization. Large pharma has clearer visibility into pricing frameworks. Biotech funding has improved modestly. And our clients have entered their budgeting cycles with more confidence. Proposal activity and conference engagement have both strengthened. That said, we believe uncertainty will persist in the overall environment in the near term. Despite these challenges, the momentum behind biosimulation continues to accelerate.

Our biopharma and regulatory partners are scaling their internal model-informed development capabilities investing in data curation, and digital infrastructure, and increasingly incorporating AI into modeling workflows. The convergence of cloud computing AI, and model-informed drug development is reshaping how the R&D teams within our biopharma clients operate. And our validated science puts us at the center of that shift. We started laying the groundwork for this future with the release of GastroPlus 10.2 earlier this year. And we’ll continue with portfolio-wide updates in fiscal 2026. As our customers expand their internal biosimulation capabilities, they are turning to partners who can deliver scientific rigor, integrated workflows, and AI-assisted efficiency.

All grounded in regulatory grade and scientifically validated models. Our product vision directly aligns with these needs. Connecting advanced science cloud scale computation, and AI-driven services into a unified ecosystem that supports teams through discovery, through clinical development, and commercialization. Taken together, these trends reinforce the long-term demand for our solutions and our leadership in the field. What we are hearing consistently from clients is that biosimulation is no longer a set of point solution tools. It’s becoming the backbone of how R&D organizations operate. Teams want faster cycle times stronger interoperability, and AI-assisted workflows that reduce manual effort while preserving scientific rigor. They want systems that help them organize their data, standardize their modeling approaches, and deliver reproducible results for regulatory submission.

This is exactly where our strategy is headed. Over the past year, we have been building toward an integrated product ecosystem that combines three strengths Simulations Plus can offer. Validated science, cloud scale performance, and AI that is grounded in regulatory grade modeling. In fiscal 2026, that strategy comes into focus. Across Gas Group Plus, Monolix suite, AdmetPredictor, our QSP platforms, and proficiency we are enabling advanced science continuous investment in the scientific engines trusted by global regulators leading R&D teams. A connected ecosystem interoperability across products, powered by the Simulations Plus Cloud, to support end-to-end modeling workflows from discovery through clinical develop. AI-driven services, tools that enhance data curation, accelerate simulation, interpretation, and streamline regulatory compliant reporting.

AI and human collaboration, copilots and reusable modules that improve efficiency, consistency, and delivery times for scientists and consultants alike. These enhancements are not abstract concepts. They are tied directly to customer pain points and to the direction the industry is moving. And importantly, they position us to bring new capabilities to market with greater speed and cohesion than at any point in our history. We look forward to sharing much more detail about this integrated product strategy at our virtual investor day in January. Including the road map that unifies our scientific engines cloud infrastructure, and AI capabilities into a modern interoperable biosimulation ecosystem. With that, I’ll turn the call over to William Frederick.

William Frederick: Thank you, Shawn. To recap our fourth quarter performance, total revenue decreased 6% to $17.5 million. Software revenue decreased 9% representing 52% of total revenue, and services revenue decreased 3%, representing 48% of total revenue. Fiscal year total revenue increased 13% to $79.2 million. Software revenue increased 12% representing 58% of total revenue, and services revenue increased 15%, representing 42% of total revenue. Turning to the software revenue contribution from our products for the quarter, discovery products, primarily Admet Predictor, were 18%. Development products, primarily GastroPlus and Monolix Suite, were 77% and clinical ops products primarily proficiency were 5%. For the fiscal year, discovery products were 17%, development products were 75%, and clinical ops products were 8%.

We ended the quarter in fiscal year with 311 commercial clients achieving an average revenue per client of $94,000. And an 83% renewal rate for the quarter. For the fiscal year, we achieved average revenue per client of $143,000 and our renewal rate was 88%. During the quarter, software revenue and renewal rates continue to be impacted by market conditions and client consolidations. Specifically, ADMET predictor declined 10% for the quarter compared to the prior year and grew 5% for the fiscal year. GastroPlus declined 3% for the quarter compared to the prior year, and grew 1% for the fiscal year. Monolix suite grew 3% for the quarter compared to the prior year, and grew 14% for the fiscal year. Our QSP QST solutions grew 22% for the quarter compared to the prior year, and grew 26% for the fiscal year.

Proficiency declined 63% for the quarter and grew 206% for the fiscal year, with the prior year reflecting January revenue following the June 2024 acquisition? Shifting to our services revenue contribution by solution for the quarter, development, which includes our biosimulation solutions, represented 77% of services revenue and commercialization, which includes our MedCom services, represented 23%. The revenue contributions for the fiscal year were 76% and 24%, respectively. Total services projects worked on during the quarter were 191 and ending backlog increased 28% to $18 million from $14.1 million last year. Overall, we have a healthy pipeline of services projects and we continue to expect at least 90% of the backlog to convert to revenue within the next twelve months.

Services revenue for the quarter declined compared to the prior year as expected and grew 15% for the full year, primarily due to the addition of the MedCom business. Specifically, PVPK services declined 10% for the quarter compared to the prior year and 14% for the fiscal year. QSP services declined 50% for the quarter compared to the prior year and 26% for the fiscal year. PKPD services grew 18% for the quarter compared to the prior year, and 5% for the fiscal year. 70% for the quarter and 622% for the fiscal year, with the prior year reflecting only fourth quarter revenue following the June 2024 acquisition. Total gross margin for the fiscal year was 58%, with software gross margin of 79% and services gross margin of 30%. On a comparative basis, total gross margin for the prior year was 2%, the software gross margin of 84%, and services gross margin of 30%.

The decrease in software gross margin was primarily due to an increase in the amortization of developed technology with the acquisition of proficiency and higher amortization expense for capitalized software development costs related to the release of GastroPlus in May 2024. Turning to our consolidated income statement for the fiscal year, R&D expense was 9% of revenue compared to 8% last year, reflecting our continued investment in product innovation. Sales and marketing expense was 15% of revenue compared to 13% last year deliberately supporting initiatives to drive growth across our expanded portfolio and increase market awareness. G&A expense, excluding nonrecurring items, was 25% of revenue down from 28% last year. Total operating expenses including a noncash impairment charge of $77.2 million were 148% of revenue compared to 53% last year.

Other income was $1.4 million for the fiscal year compared to $6.3 million last year, primarily due to a decrease in interest income and a decrease in the fair value of the earn-out liability. Income tax benefit for the fiscal year was $4.7 million, compared to income tax expense of $2.5 million last year and our effective tax rate was 7% compared to 20% last year. We expect our effective tax rate for fiscal 2026 to be in the range of 12% to 14%. Net loss and diluted loss per share for the fiscal year, including the $77.2 million noncash impairment charge were $64.7 million and $3.22 compared to net income of $10 million and diluted EPS of 49¢ last year. Adjusted diluted EPS was $1.03 this fiscal year, compared to 95¢ last year. Fiscal year adjusted EBITDA was $22 million, compared to $20.3 million last year at 28% and 29% of revenue respectively.

Moving to our balance sheet, we ended the year with $32.4 million in cash and short-term investments. We remain well capitalized with no debt and strong free cash flow to continue to execute our growth and innovation strategy. Our guidance for fiscal year 2026 remains the same as we provided in October. Total revenue between $79 million to $82 million year-over-year revenue growth between 0% to 4% software mix between 57% to 62%, adjusted EBITDA margin between 26% to 30%, and adjusted diluted earnings per share between $1.03 to $1.10. We also anticipate first quarter revenue to be approximately 3% to 5% lower than the same period last year. Our fiscal year and first quarter guidance assumes a stable operating environment with market conditions in FY ’26 expected to resemble those at the close of FY ’25.

Should market conditions improve and our clients increase spending in FY ’26, we will be poised to respond. I’ll now talk turn the call back to Shawn.

Shawn O’Connor: Thank you, Will. As we look ahead to fiscal 2026, our thirtieth year as a company, We’re energized by the opportunity in front of us. Simulations Plus is evolving from a set of pioneering modeling tools into a unified ecosystem supporting discovery, development, clinical operations, and commercialization. Our acquisitions our investment in science, and our integrated operating model have expanded both our reach and our impact. What remains unchanged is our core purpose. Helping our partners bring safer, more effective therapies to patients through science-driven innovation. What is changing and accelerating is how we deliver on that mission. With validated scientific engines, expanding cloud capabilities, AI-assisted workflows, and a coordinated road map We’re positioned to support our clients with more speed, consistency, and interoperability than ever before.

We look forward to sharing more about this strategy our product road map, and the next phase of our evolution at our virtual investor day on January 21. We’re excited to give you a deeper look at how our ecosystem comes together and how it will create value for clients, investors, and patients worldwide. Thank you for joining us today. And with that, we’ll open the call for questions.

Operator: Thank you. Will now be conducting a question and answer session. Before pressing the star keys. Our first question comes from Jeff Garro with Stephens Incorporated. You may proceed with your question.

Q&A Session

Jeff Garro: Afternoon. 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? Thanks.

Shawn O’Connor: Yeah, Jeff. Thanks for thanks for the question. Yeah. I can give, you know, global metrics of the have been cited often. Certainly, an uptick in biotech funding, is a positive. So another funding, announced today, up modestly from where it’s been over the last six to twelve months. Continued funding in that sector would support that element of our business, which is about 25% of our client base or revenue drive is out of the On the large pharma side, mixed bag mostly positive. But sporadic, you know, challenges from some of the large pharma in their encountering a program success or failure. But certainly an uptick there. We’ve we’ve we’ve come out of our heavy conference window of time. With our clients. And, boy, budgeting activity for next year seems to have some momentum.

I’m cautious about that. There was momentum there last year, and, no surprises came after the first of the year. So, feel very positive in terms of the discussions we’re having with customers setting up the proposals and budgeting activity for for next year, it it looks pretty good. And so we enter our fiscal year, ’26 here, on on good footing. Being cautious, watching for an evolving marketplace where, you know, certainly, announcements often, you know, cause pause in the in activity of our clients, but, mostly mostly bright lights.

Jeff Garro: Great. I appreciate all those comments. And and then the follow-up, know, I I don’t wanna get too far ahead of ourselves in front of the Investor Day, but I am curious on the feedback for the GastroPlus release that’s been infused with some AI capabilities. And and what that might mean for for that key product as well as demand for AI infusions and and other products. You know, you you hit the the the kind of macro details. We’d love to hear about the how the innovation plan is starting to to impact your client discussions even at an early state.

Shawn O’Connor: Yeah. It is it is early stage. You know, the announcement of GastroPlus was followed with webinars and some training and, visibility provided to clients. Much visibility prior to its delivery is many of our clients participate, in, the development programs and provide input during the course of its activity. And, you know, the responses have been positive. They’re digest it. We’re seeing a lot of evolution in terms of our clients and their internal IT infrastructure and many of the cloud and AI capabilities that are being released now will fit into those new ecosystems that they’re building internally. And, so initial response is good. As with most releases in in our space. Their adoption and installation in our clients.

It’s fit into their timetables and process. But I think everyone is looking for ways to leverage, AI capabilities Our clients are very focused in terms of their data management internal to their organization that feeds the analytical tools that we provide them, and, so great excitement in terms of they’re seeing that, our platforms are staying ahead of the curve in terms of functionality that, they’re looking to deploy, in the coming months and years.

Jeff Garro: Sounds good. Thanks for taking the questions.

Shawn O’Connor: Sure. Thanks, Jeff.

Operator: Our next question comes from Matthew Hewitt with Craig Hallum. You may proceed with your question.

Matthew Hewitt: Good afternoon. Thanks for taking the questions. Maybe first up, you know, and you’ve touched on this a little bit, but so you had most favored nation pricing. You’ve had tariffs. You’ve had, a soft funding environment, and it’s seems like we’re getting either clarity or improvement in all three of those Is there anything else that would result in large pharma being cautious, or is it just more confirmation on those three buckets, and that’s when start to see kind of the the increase in in spend.

Shawn O’Connor: Yeah. I mean, there’s there’s a a number of factors there, and it’s you know, anecdotal with each client in their own specific PACSAT in terms of their drug programs and know, top top line patent expirations. Each each entity has their own know, guidepost that they’ve got to, you know, manage and strategize around and they’ll respond. I mean, generally, it’s an industry that responds to, its budgeting cycle. So, budgeting for the calendar year ’25 is in place, not not changing, and now they’re looking at ’26 and putting budgets in place there. So there’s sort of a know, more positive there. It doesn’t necessarily translate to discord, but they’re budgeting into into next year. You know, I think that we we all we all check our you know, phone periodically to see if been a tweet today or or not.

So there’s there’s still that cautiousness. And, you know, foreboding of what what what may happen tomorrow. But, yeah, generally, you know, I think outlook is positive. Momentum into, the budget preparation. For ’26 is is positive, and know, I think if we get, you know, some quarters in a row without any surprises that tend to you know, put a shock wave into the system. If we see a few quarters without that, then I think that confidence grows and and spending gets more firmly committed.

Matthew Hewitt: Got it. And then maybe the the follow-up to that is, you know, if we do see the improvement, and you see a ramp in bookings and backlog, do you feel like you’ve got the right headcount now to support a higher revenue base at least over the near term, or do you feel like, know, depending upon how things shake out, you might be in a situation where you’re having to backfill some roles that know, given the kind of the reductions over the past two years. Thank you.

Shawn O’Connor: You know, the software side of the business is, leverageable in terms of, immediate needs to that are created to have business upticks. If it upticks, you know, there’s not an immediate need in terms of people side, it’s certainly a fair question on the service side of our business. And, you know, we feel very comfortable with the the capacity we have now, its utilization. Supporting, the guidance we’ve given into into ’26 if that side of the business, accelerates, more quickly than we’re you know, planning for, our ability to grow that capacity. Is much better today than it was in the past. When, the resources were a little scarcer and in terms of the scientific profile that did this type of work. You know, our we made our reduction in force last year with a little bit more confidence that, hey.

If we if we need to step up in terms of, our team there, that we can do so. Relatively timely and supportive business volumes increasing. So I think we’re well positioned today for our business in ’26 as anticipated. It’s a accelerates, our ability to meet that demand is what we should be capable of doing so.

Matthew Hewitt: Got it. Thank you.

Operator: Thanks, man. Our next question comes from Scott Schoenhaus with KeyBanc Capital Markets. You may proceed with your question.

Scott Schoenhaus: Hey, team. Thanks for taking my question. Shawn, I wanted to ask about the guidance. It’s reiterated, obviously. Maybe parse through if anything has changed underneath that guidance. I believe, you know, there was some caution around the services side. Software was sort of, there was headwinds in the first half. Mostly related or I think partly related to proficiency growth, comps, but that that eases in the second half. Maybe just walk us through if anything has changed on the background of the guidance and maybe parse through the first quarter guidance that you just spoke about on the prepared remarks? Thanks.

Shawn O’Connor: Sure. No. I mean, in a short interval, since we delivered the guidance in October, you know, nothing significant has changed underlying the assumptions underlying that we, you know, entered fiscal year twenty six, you know, having, you know, post our adjustment back in June, July time frame, bringing down our guidance for the back half of the 2025 time frame. We achieved that back end fiscal year twenty five guidance, which reflected a little bit of stability in terms of the flow of revenues both on the software and, and and service size. Hope side is albeit at a reduced reduced level. We see some progress on an absolute dollar basis moving into excuse me, the first part of the the year, you know, normal seasonality pan or patterns exist.

First quarter is not our most robust quarter for renewals. Most of those are timed in the second and third quarter or at least the peaks. In those two quarters. And in the first part of the year, we’ve got reduced levels of proficiency revenue contribution both in software with a proficiency platform as well as med communications service revenues that their comparable time frame in ’25, those were their most, you know, highest revenue contribution post acquisition, and so some challenging comps there. So as we we indicated, three to 5% first quarter revenue below the comparable year in the first quarter. That fits into our 0% to 4% growth for the year. And so no no change in in in ex expectations or or assumptions underlying. The guidance we provided.

And then, does your guidance assume any biotech end market recovery? And then, also, I know that there were some degree of cancellations baked into the guidance. Has sounds like the that the biotech environment, you know, is still cautiously optimistic. What would it take you to you know, view the cancellation projection or caution for the full year what would it what would what would it have to take for you to, sort of moderate your expectations there? Thanks.

Shawn O’Connor: Yeah. I mean, two components to your question there in terms of biotech funding. You know, it if if it continues, it certainly will will will prove a a a positive in terms of contributing both on the software and and and consulting sides. You know, there’s there’s not an immediate translation in terms of funding today. And purchase order, issued tomorrow. They’re it depends on the circumstance of the stage of, that particular funded biotech’s programs where they are in the development timeline to, you know, driving what type of services I can support them. You know, obviously, if if it continues in a positive way here that we’ll bring back that cyclin that contributed, certainly a a greater percentage of revenue on revenue growth you know, back a year or two, three years ago when it was relatively robust.

Funding environment by type contribution to our revenue flow was growing at a much steeper rate than than than it has of late during the funding trough, if you will. And as we’ve projected into ’26. We’ve now projected a significant uptick in the biotech funding leading to uptick in in biotech revenue contribution in ’26. So that would be a a a potential potential upside. Second part of your question in terms of cancellations. You know, certainly in the cancellations can be two different things. I’m not sure what you were pointing to, but you know, we’ve had some consolidation in terms of our software renewals. Acquisitions that had led to one on one not equaling two in terms of two clients that have consolidated in terms of their renewal. You know, that, you know, that that is you know, an ongoing thing that, we’ve always experienced.

Encountered, from quarter to quarter. It’s was a little bit higher in the back half of fiscal year ’25. Certainly keeping an eye on our client base in that regard. We’ve got no known cancellations of any magnitude that you know, are on the horizon in ’26. Acquisitions that have been announced, with the effective date, down the road. Nothing nothing out there visible at point in time, but, you know, we we have in the past always had those. Doubt, though, there will be some of that into the future. Cancellations will also occur on the service side in terms of the programs that you know, are sometimes just delayed but, sometimes canceled, if the bad readout comes and the program is, is is curtailed. You know, we we had to significant one in the back half of twenty five that impacted us, relatively unusual.

Circumstance, both in terms of its, well, in terms of its magnitude size of contract there. You know, no no standout risk of that nature in our back right now. But no doubt, there there will be, programs that have bad readouts and delays that will occur out of the contracts that sit in backlog. You know, are forecasting process of metering out when that backlog revenue will be taken to revenue certainly includes a discount factor, a risk factor that know, those delays will occur, and we believe we’ve been cautious in terms of an estimate of that impact in our assumptions underlying our guidance going forward. And, again, that that’ll always be be there. We’re in the business of helping our clients. Curtail programs, quicker, if their predictive outcome is not high.

So, that’s something that will always occur in our business. We just need to be adapted managing around them, which, in fact, we did very well in the fourth quarter. That large cancellation we had put a very large gap in our fourth quarter service schedule there. And the team did a very good job of replacing or reallocating resources to other projects that were current and and able to be worked on. Our sales team did a good job of closing business in the quarter, but could be started in the, in the quarter. And, you know, the silver lining there, the that was also all done with a pretty good flow of bookings. During the quarter. So our backlog was not depleted in that group. Seen an increase in backlog year over year. And so on the on the cancellation side, yeah, it will continue to occur into in the twenty sixth.

That’s a normal part of our business. We’ve implemented discount factors in our our forecasting at the sort of levels coming out of the the back half of the year. Maybe potential upside if if those slow down with that.

Scott Schoenhaus: Thank you. Very helpful.

Operator: Our next question comes from Max Schmock with William Blair. You may proceed with your question. Hi. It’s Christine Rains on for Max Smock. Good afternoon. Thanks for taking our questions. First one, I imagine it touches on the answer for the previous question a little bit, just in terms of large pharma consolidation. But we noticed that the renewal rate in software remains below previous years and last quarter on a fee basis. So hoping you can provide some context on what it was on an account basis in the fourth quarter. And what factors are weighing on renewals and just kind of if and when we can expect renewals to return to the the 90% ballpark.

Shawn O’Connor: Yeah. Good question. You know, we encountered renewal on fee step down into the high 80s, mid 80s, really driven by a couple three, maybe four impactful consolidations that hit us in the in the back half the year, the third and fourth quarter. Driving that down The the other element in there is that while while our clients you know, are generally not, reducing, their staffing and modeling and simulation and that, if you will, ties to the amount of software, the number of seats, if you will, that they’re licensing from They in this, you know, constrained budget in environment, they they do take a very close look at configurations and, while, you know, reducing the number of platforms that they’re licensing from us or generally the seats for them.

You know, they do look at, hey. The modules that are associated with each seat and platform. And can they know, save some money there? And so, you know, we saw a lot more scrutiny of that nature, you know, in the back half of of twenty five, also contributes to that renewal on fees number coming down a bit. Hey. You know, it’ll it’ll it’ll drive back towards 90 as we see you know, the absence of as many, cancellations I think having gone through their scrutiny on a module by module basis last year, the potential for that impacting the renewal rate this year is less. We’ve done that once, and you know, we’ll have we’ll have done that review and and filtered out things, but maybe they don’t need as many of these modules or those modules. I think that will will help improvement going forward as well.

And the other the other factor will be, you know, price increase. All things being equal, the renewal on on fees percentage is also impacted by the uptake of our annual price increase which has been a bit more aggressive this year than it was last year. And so that should have a positive effect on on renewal on fees rates as well.

Christine Rains: Got it. That makes a lot of sense. And just one on margins for us, Given, the number of moving pieces on the cost side, hoping you can walk through what is baked into your EBITDA margin guide for gross margin overall and in software versus services. And then just broadly, any color you can give us on your EBITDA margin cadence over the course of fiscal 2026 maybe similar to the revenue guide, you gave in terms of down or up in the in q January imagine down. But anything you’d give would be helpful. Thanks.

Shawn O’Connor: Yeah. From a from a, you know, kinda overall perspective, you know, we we come in and as we’re looking at quarter to quarter on the expense side comparisons, are reduction in force contribute We announced the $4 million impact from the reduction in force million a quarter starting in the fourth quarter. So the ’26 guidance anticipates that benefit when you’re looking looking year over year over year there. Secondly, in know, a world in which, you know, your top line growth is you know, zero to 4% where we’re at, or at, you know, that does not give a lot of leverage in terms of EBITDA in an environment where you’ve got other expenses that inevitably are gonna rise in terms of the, you know, the the computation increases for your staff on board and medical benefits and things like that.

So our guidance in terms of adjusted EBITDA, 26% to to 30% adjusted EBITDA. Shows a little bit of improvement to see some greater improvement than that. I think we need to see some get back to where we were in terms of top line growth at 10% or above. Our expectation is still targeted at 35%. EBITDA, and I think our ability to get there does exist. It’ll it’ll need some time or some upside to the top line guidance that we’ve we’ve provided the this next year.

Christine Rains: Great. Thank you.

Operator: Our next question comes from David Larsen with BTIG. You may proceed with your question.

David Larsen: Hi. Can you talk a little bit about the, the proficiency asset? I think you said in the fourth quarter revenue was down fairly substantially. I guess, can we just talk about why that is? Is it the software business or the service business? And what’s driving that? I think it was down was it 63% year over year in the the quarter? Is that right?

Shawn O’Connor: Yeah. Was saying 63% in terms of the proficiency platform. On the, on the software side. Services were commercial MedCom, services from the Proficiency acquisition were up 70% for the quarter. So the two contributions of revenue from the acquisition on the software side, as we’ve indicated. In the back half of fiscal year ‘twenty five. The clinical trial starts and other factors. Have shown a a slowdown in that side of side of the Medical communications has been impacted somewhat, but, you know, still still growing quite nicely in there year over year. Was much higher in terms of fourth quarter. Their first quarter contribution last year versus this year.

David Larsen: Okay. And and can you just remind me what percentage of proficiency revenue is software?

Shawn O’Connor: It’s, j I don’t have the exact percentage. I don’t know well if you’ve got it, but generally, it’s about 40% software, 60% service or something of that nature?

William Frederick: Okay. Yeah. We’ve definitely included in the investor deck kind of the percentage of total software revenue and percentage of services revenue that the proficiency software contributes towards in the medcom business, really integrating it as we sell the solution across the entire ecosystem.

David Larsen: Okay. And then for for the one q revenue guide, I think that’s through November. So you probably have very good visibility into that. Still a year over year decline. Is it I mean, in order to meet your full year guide for fiscal twenty six, I would I mean, you’re gonna have to see some ramp up in bookings. I mean, do you do you have how much visibility do you have into that? Is it I mean, are those deals booked? Any sense for what percentage of the software or service revenue is under contract

Shawn O’Connor: Yeah. Like like like any period, obviously, you know, our our earnings release here on December 1 is, later given the change in reporting status and whatnot. It gives us an ability to you know, re reaffirm our guidance for the year with good visibility, obviously, into first quarter here. And so that is all tracking to those numbers. Yeah. I think the you know, dynamics of the quarter by quarter contribution fiscal year twenty six here, shows better year over year growth percentages. But the absolute dollar revenue uptick, if you will, on a quarter quarter basis is pretty consistent. Given our seasonality. You know, first and fourth quarter, lower end software and whatnot. And the percentage growth is really impacted significantly by you know, the strong first and second quarters we had in ’25 and the weak third and fourth quarters.

That we had in in 25% say percentage growth dynamic that, will show a a big step up in the back half of the year. It isn’t quite as big a step up when you look at it on an absolute dollar basis from our starting point coming out of the back half. Twenty five.

David Larsen: Okay. Thanks very much. I’ll hop back in the queue.

Operator: Our next question comes from Constantine Davides with Citizens. You may proceed with your question.

Constantine Davides: Thanks. Sorry, I just want to clear something up. Am I right to infer that you’re 2026 guidance contemplates an extension of recent renewal trends kind of in the low to mid-80s. I just want to be sure I heard that right.

Shawn O’Connor: It does. I would say, you know, it does in the sense of the the consolidations, you that sort of activity. As I mentioned earlier, we we have implemented a more impress more more higher price increase, this year. And so that, you know, you know, on a year to year consistency basis, that that contribution to the renewal rates, and our revenue guidance is, is baked in there.

Constantine Davides: Got it. And then Shawn, you you guys talked about the strength of the balance sheet as well as cash flow. And I guess two questions on that. One is what’s a good way to think about cash flow in fiscal twenty six? And then I I know you kind of always talk about being on the hunt for interesting assets. And just wondering if you can talk about your level of interest in terms of assets in your core markets, a newer market like clinical ops and and even the potential for a transaction outside of those markets. Thanks.

Shawn O’Connor: Yeah. You know, cash flow, runs the seasonality pattern of our of of our revenue, driven by that seasonality of when our clients renew, and that drives the revenue into the core quarter buckets. You know, our outlook there is, you know, robust as it as it has been even in our challenging times. Cash flow is very positive. And turning to acquisition side of your question, Yeah. Our our, you know, scoping of opportunities out there No change in expectation that we will as we have in the past. Continue to grow through both organic contribution as well as acquisitions. Into our future opportunities exist in the two landscapes that we operate in primarily ’26, ’25, I say, was would be characterized as a year of integration of our large proficiency acquisition, ’26 should give us an opportunity to take a look at how we can, you know, get to the next acquisition if you will in our in in our history.

Operator: Our next question comes from Brendan Smith with TD Cowen. You may proceed with your question.

Brendan Smith: Great. Thanks for taking the questions, guys. Maybe just quickly expanding on some of the earlier questions here, but can you speak to really how we should be thinking about pricing flexibility that you all have and and I guess maybe any plans at this point to lean into some of that next year, especially as some of the AI capabilities roll out across the platform? I’m really just trying to, you know, understand a little bit to what extent the 26 guiding includes any of those pricing assumptions kind of versus new customer ads, expansions of existing customer licenses? And just really what kind of levers we should think about that could kinda drive us closer to flat versus 4% or even more within that framework next year. Thanks.

Shawn O’Connor: Yeah, Vernon. Good question. Yes, our pricing is a little bit more aggressive than it is, pardon parcel with the know, upgrades and new platform AI and cloud capabilities that are planned to be delivered during the course of the year. The monetization of that functionality comes through a combination of separately priced modules and some of that technology integrated into the base platforms, which supports a more price increase this year. The stickiness of the product has been such that we have and do raise prices on an annual basis. And when we’ve delivered significant improvements to the platform, we’ve sought to share the benefits of that with the with with clients, if you will, in terms of more aggressive pricing.

Much of the AI, certainly the automation components of it will provide them greater efficiency and make their organizations that much more productive in modeling and simulation and therefore, a price increase is justified. So in these are sharing the wealth there a bit with them. How much of that is baked into our guidance going forward. You know, it’s it’s you know, keep in mind that it’s, the answer is it’s baked in, but discounted at a couple of different steps of the way. There’s always a yield to a price increase. You don’t get full price increase from every single one of your customers out there, and, and as well. It’s filtered through the course of the year when when licenses are are renewed. And so it’s it’s paced and discounted, I guess, if I can use that phraseology.

Price increase on the service side is you know, it it in an environment like this where there are fewer shots on goal, meaning there are fewer projects that are offered up in in the marketplace, makes for a little bit more price competition in that in that space. So while there inevitably is some price increase in terms of the standard hourly rates of our our staff and whatnot. We’ve, anticipated a a a very competitive still market to remain. In fiscal year twenty six. So I wouldn’t say that any of what we normally do on a pricing basis from the service side there’s no no step up. Baked into the guidance on the service side.

Brendan Smith: Okay. Got it. It makes a lot of sense. Thanks for that color. Thanks, guys.

Shawn O’Connor: Cheers. Take care.

Operator: This now concludes our question and answer session. I would like to turn the call back to Shawn O’Connor for closing comments.

Shawn O’Connor: Well, thank you again for joining our call and and your interest in Simulation Plus. On December 11, we’ll be attending the TD Cowen third Annual Diagnosing Tomorrow: Tools and Technologies for the Next Decade. In New York. During the week of January 12, we’ll be attending, the JPMorgan conference in San Francisco. And hope to see many of you at either of these, on the calendar coming up in the near term here. Other than that, appreciate your interest, and, take care.

Operator: Ladies and gentlemen, thank you for your participation. This concludes today’s conference. Please disconnect your lines and have a wonderful day.