Simulations Plus Meets Revenue Expectations but Software Segment Declines in Q1
SIMULATIONS PLUS INC (NASDAQ:SLP) reported financial results for its first quarter of fiscal year 2026, ended November 30, 2025. The company, a provider of model-informed and AI-accelerated drug development solutions, delivered revenue in line with its guidance but experienced a notable shift in its business mix and a year-over-year decline in a key profitability metric.
First Quarter Financial Performance vs. Estimates
The company's top-line performance narrowly surpassed analyst expectations, while adjusted earnings per share came in slightly below consensus.
- Revenue: Reported total revenue was $18.4 million, a 3% decrease from the $18.9 million reported in Q1 2025. This figure slightly exceeded the analyst consensus estimate of approximately $18.28 million.
- Adjusted EPS: The company reported adjusted diluted earnings per share of $0.13. This was marginally below the analyst estimate of $0.1313 and represented a decline from the $0.17 reported in the prior-year period.
A deeper look at the revenue composition reveals a significant divergence between the company's two segments. Software revenue decreased by 17% year-over-year to $8.9 million, while services revenue grew by 16% to $9.5 million. Consequently, services represented 52% of total revenue for the quarter, compared to a typically higher software mix.
Market Reaction and Segment Analysis
Following the earnings release, shares of Simulations Plus traded lower in after-hours activity, indicating a muted or slightly negative investor response. This reaction likely stems from the mixed nature of the report: while revenue met targets, the sharp decline in the high-margin software segment and the drop in adjusted profitability metrics appear to have weighed on sentiment.
CEO Shawn O'Connor attributed the software decline to an "expected decrease in clinical operations and development revenue," which was only partially offset by growth in discovery solutions. Conversely, the services segment showed strength, driven primarily by commercialization offerings. The company highlighted strong bookings in both segments and the benefit of annual software price increases as reasons for confidence in its full-year outlook.
Profitability and Forward Guidance
The shift toward a greater proportion of services revenue impacted profitability measures. Gross margin improved to 59% from 54% in the prior year, benefiting from lower software costs. However, adjusted EBITDA was $3.5 million (19% of revenue), down from $4.5 million (24% of revenue) a year ago.
Management reaffirmed its full-year fiscal 2026 guidance, which was initially provided previously. The outlook anticipates a return to growth and improved profitability in the coming quarters:
- Revenue: $79 million to $82 million, representing 0% to 4% growth.
- Adjusted EBITDA Margin: 26% to 30%.
- Adjusted Diluted EPS: $1.03 to $1.10.
This guidance implies a significant sequential acceleration in performance. For context, the current analyst consensus estimate for full-year revenue is approximately $81.1 million, which sits at the high end of the company's guided range. The EPS guidance midpoint of $1.065 is above the current analyst consensus of $0.7676, suggesting management expects a stronger earnings rebound than the street currently forecasts.
Conclusion
Simulations Plus entered fiscal 2026 with a quarter of transition. The company successfully met its revenue target, fueled by robust services growth, but faced anticipated headwinds in its software division. The reaffirmation of its full-year guidance suggests management views the Q1 software weakness as temporary and expects the segment to recover alongside continued services strength, supported by an improved client funding environment and price increases. The market's initial reaction reflects the complexity of balancing segment performance against overall targets. Investors will likely focus on the company's upcoming Virtual Investor Day on January 21, 2026, where it plans to detail its integrated product vision and AI solutions, for further clarity on its growth trajectory.
For a detailed look at historical earnings, future estimates, and analyst projections for Simulations Plus, visit the earnings and estimates page.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, investment recommendation, or an offer to buy or sell any security. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.
