Simulations Plus (NASDAQ:SLP) reported fiscal first-quarter 2026 results that management said came in line with internal expectations, as strength in services offset a year-over-year decline in software revenue. On the company’s earnings call, executives also pointed to what they described as improving industry and regulatory signals, including better biotech funding conditions and recent FDA guidance supporting in-silico methodologies.
Quarterly results: revenue down 3% with a mix shift toward services
Chief Executive Officer Shawn O’Connor said the company delivered on the top-line guidance it communicated in December, with revenue declining 3% as expected. Chief Financial Officer Will Frederick added that total revenue fell 3% to $18.4 million.
- Software revenue decreased 17% and represented 48% of total revenue.
- Services revenue increased 16% and represented 52% of total revenue.
Adjusted profitability metrics were described as in line with expectations. O’Connor said adjusted EBITDA was $3.5 million and adjusted EPS was $0.13 for the quarter.
Software performance: development products steady, clinical ops volatile
Frederick broke down software revenue contributions by product category for the quarter. Development products—primarily GastroPlus and MonolixSuite—accounted for 81% of software revenue, while discovery products (primarily ADMET Predictor) were 15% and clinical operations products (primarily Pro-ficiency) were 4%.
On a trailing 12-month basis, the mix was similar: discovery products were 18%, development products were 77%, and clinical ops products were 5%.
Management also discussed the year-over-year movements within those categories. Frederick said discovery revenue increased 3% for both the quarter and the trailing 12-month period. Development revenue declined 6% for the quarter but grew 1% over the trailing 12-month period. Clinical operations revenue declined 82% for the quarter and 28% over the trailing 12 months, which executives tied primarily to Pro-ficiency’s software platform.
In response to a question about softness in QSP-related software, O’Connor said QSP model licensing can be “lumpy” because many therapeutic models are sold on a perpetual license basis. He noted that the year-ago quarter included multiple therapeutic QSP model sales, creating a difficult comparison, while activity in the most recent quarter came in as expected. O’Connor emphasized he continues to see strong interest in QSP offerings, both in software and services.
On client metrics, Frederick said Simulations Plus ended the quarter with 302 commercial clients, average revenue per client of $97,000, and an 88% renewal rate for the quarter. He added that trailing 12-month average revenue per client was $147,000 and the trailing 12-month renewal rate was 87%. O’Connor said the quarter’s renewal rate was impacted by a couple of renewals that were signed after Thanksgiving weekend and closed in early December.
Services strength and growing backlog, led by med-com contribution
Services was the primary growth engine in the quarter. Frederick said the company worked on 186 total services projects and ended the quarter with backlog of $20.4 million, up 18% from $17.3 million a year ago. He said the company has a “healthy pipeline of services projects.”
Within services, development solutions—including biosimulation services—represented 71% of services revenue, and commercialization solutions—including med-com services—represented 29%. Frederick said commercialization services grew 42% during the quarter and 191% over the trailing 12-month period, while development services grew 8% in the quarter and declined 5% over the trailing 12 months.
Executives attributed the quarter’s services outperformance primarily to medical communications. In response to a question, O’Connor said medical communications represents 100% of the company’s commercialization services revenue and came from the Pro-ficiency acquisition. He also said med-com delivery in the quarter came in above expectations and that the outlook for fiscal 2026 in that area is positive.
O’Connor and Frederick both described services momentum as potentially preceding a broader pickup in software activity. O’Connor explained that when clients begin spending again after a constrained environment, they can initiate external services projects more quickly, while software expansion can follow as customers grow internal modeling teams and pursue upsells.
Margins, operating expense priorities, and balance sheet
Frederick said total gross margin was 59% in the first quarter, including software gross margin of 84% and services gross margin of 36%. In the prior-year period, total gross margin was 54%, software gross margin was 75%, and services gross margin was 26%.
Frederick said the higher software gross margin was primarily due to lower clinical ops revenue, while the improvement in services gross margin reflected the prior-year reduction in force and the reorganization of services personnel to support product development.
On operating expenses, Frederick said first-quarter R&D was 16% of revenue and the company expects R&D to be about 15% to 17% of revenue for the year. He said operating expenses in total are still expected to be around 50% of revenue for the year, with sales and marketing in the 13% to 15% range and G&A continuing to come down as a percentage of revenue.
On capitalized software development, Frederick said capitalization levels are running about the same as before, with “mid-20%” of the work going into capitalized software, which is then amortized quarterly.
Simulations Plus ended the quarter with $35.7 million in cash and short-term investments. Frederick said the company has no debt and “strong free cash flow” to support its growth and innovation strategy.
Guidance maintained; investor day planned for January 21
The company maintained its fiscal 2026 guidance. Frederick reiterated management’s outlook for total revenue of $79 million to $82 million, year-over-year revenue growth of 0% to 4%, software mix of 57% to 62%, adjusted EBITDA margin of 26% to 30%, and adjusted diluted EPS of $1.03 to $1.10. He said second-quarter revenue is expected to be approximately $21 million to $22 million.
During Q&A, O’Connor said the company still expects software to be stronger in the second and third quarters due to renewal seasonality. He also discussed year-over-year comparability issues in software, particularly related to Pro-ficiency, which he said peaked in the first half of fiscal 2025 and then declined in the back half.
Looking beyond quarterly results, O’Connor emphasized the company’s focus in fiscal 2026 on building an “integrated product ecosystem” combining validated science, cloud-scale performance, and AI grounded in regulatory-grade modeling. He said initial AI features released with GastroPlus late last fiscal year have been received favorably and that the company was “more aggressive” with price increases this year as AI capabilities were embedded in the base model.
Management said it plans to provide more detail on its product roadmap and strategy at a virtual investor day on January 21.
About Simulations Plus (NASDAQ:SLP)
Simulations Plus, Inc (NASDAQ: SLP) specializes in advanced modeling and simulation software tailored to the pharmaceutical, biotechnology and chemical industries. The company’s flagship products include ADMET Predictor, a quantitative structure-activity relationship (QSAR) tool for predicting absorption, distribution, metabolism, excretion and toxicity properties, and GastroPlus, a physiologically based pharmacokinetic (PBPK) modeling platform for simulating drug absorption and pharmacokinetics.
