Simulations Plus reported first‑quarter fiscal 2026 revenue of $18.4 million, a 3 % decline from the $18.8 million earned in the same period a year earlier. Software revenue fell 17 % to $8.9 million, while services revenue grew 16 % to $9.5 million, reflecting a shift toward the lower‑margin services segment. Adjusted diluted earnings per share were $0.13, missing the consensus estimate of $0.19, whereas GAAP EPS was $0.03, up from $0.01 a year earlier. Operating cash flow rose to $18.1 million, supporting the company’s cash‑rich balance sheet.
The revenue decline was driven primarily by a sharp drop in software sales, which are the company’s higher‑margin product line. The 17 % fall in software revenue was attributed to a reduction in clinical operations and development contracts, while a modest increase in discovery‑solutions sales partially offset the loss. In contrast, services revenue expanded 16 % as commercialization offerings and development projects grew, indicating that the company’s services business is gaining traction even as software demand slows.
The adjusted EPS miss was largely a consequence of the software revenue contraction and the resulting mix shift. Lower software sales reduced the company’s high‑margin revenue base, while the higher‑volume services segment carries lower margins. Additionally, the company incurred higher operating expenses related to research and development and sales‑and‑marketing investments aimed at expanding its AI‑enabled platform, which further compressed earnings. The EPS miss of $0.06 to $0.07 per share underscored the impact of the mix shift and cost pressures.
Gross margin improved to 59 % from 54 % year‑over‑year, driven by higher pricing in the software segment and cost efficiencies in the services business. However, the adjusted EBITDA margin contracted to 19 % from 24 % a year earlier, reflecting increased operating expenses and the lower‑margin mix. The company’s management highlighted that the margin compression is temporary and that the company is investing in its AI‑accelerated platform to drive future profitability.
Management reaffirmed its fiscal 2026 guidance, maintaining revenue expectations of $79 million to $82 million and an adjusted EBITDA margin of 26 % to 30 %. CEO Shawn O’Connor said, “We met our first‑quarter revenue guidance and delivered strong performance in our services segment, driven primarily by significant growth in commercialization offerings and modest gains in development projects.” He added, “In software, the expected decrease in clinical operations and development revenue was only partially offset by an increase in discovery solutions.” O’Connor also noted, “We are encouraged by favorable market dynamics, including most‑favored nation pricing agreements and an improved funding environment for our clients.” The company’s outlook remains confident, with a focus on building a balanced portfolio of software and services while pursuing AI‑enabled growth.
Investors reacted negatively to the earnings miss, citing the adjusted EPS shortfall as the primary driver of the market’s response. The company’s unchanged guidance and management’s emphasis on confidence in achieving fiscal 2026 targets suggest that the company remains on track, but the EPS miss highlights the need for continued focus on software revenue and cost discipline.
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