Simulations Plus, Inc.

Second-quarter fiscal 2026 revenue was $24.3 million, up 8% year over year. Adjusted EBITDA was $8.7 million, representing a 36% margin, and adjusted diluted EPS was $0.35. Total gross margin was 66% versus 59% in the prior period; software gross margin was 89% versus 81%, and services gross margin was 33% versus 25%. Software revenue increased 9% and services revenue increased 8%. Discovery revenue rose 19%, development revenue rose 12%, and clinical operations revenue declined 54% in the quarter. The company ended the quarter with 297 commercial clients, average revenue per client of $124,000, and a 91% renewal rate for the quarter. Services backlog increased 18% to $24 million from $20.4 million last year. Cash and short-term investments were $41.8 million, with no debt. For fiscal 2026, management maintained revenue guidance of $79 million to $82 million, reiterated adjusted EBITDA margin guidance of 26% to 30%, and lowered adjusted diluted EPS guidance to $0.75 to $0.85 because the effective tax rate is now expected to be 23% to 25% instead of 12% to 14%. Third-quarter guidance was revenue of $20 million to $22 million, adjusted EBITDA margin of 27% to 33%, and adjusted diluted EPS of $0.20 to $0.27.

Shawn O'Connor framed the quarter as evidence that the business is gaining momentum, citing better client spending, solid renewals, stronger new-logo activity, and improved service bookings. He spent much of the call arguing that AI is a net positive for biosimulation rather than a threat, saying customers want to enhance trusted scientific engines rather than replace them. He also highlighted the three large-pharma collaboration programs as an important step from experimentation toward practical AI implementation across the drug development lifecycle.

Will Frederick walked through the quarter’s financial performance and the mix shift by segment and product line, noting software revenue up 9% and services up 8%, with software making up 60% of revenue and services 40%. He highlighted gross margin expansion to 66%, including software gross margin of 89% and services gross margin of 33%, and explained the increase in software margin was helped by lower software-related costs, including reduced amortization after the fiscal 2025 impairment charge. He also pointed to $41.8 million in cash and short-term investments, no debt, and revised the fiscal 2026 effective tax rate expectation to 23% to 25%, which reduced full-year adjusted EPS guidance to $0.75 to $0.85.

Analysts focused on the three large-pharma AI collaborations, asking how the contracts would work and whether they represented cross-sell within existing accounts or new business; management said the collaborations have been underway for some time, are meant to align product development with customer workflows, and that at least one already has some financial component, while broader monetization terms are still being discussed. Questions also centered on renewal rates, backlog, and the software mix; management said churn has been concentrated in smaller or more episodic customers, while top customers remain very stable, and that Monolix could take a larger share over time. On AI monetization timing, management said meaningful P&L contribution is not expected in fiscal 2026 and that fiscal 2027 is the more likely contribution window.