Simulations Plus Sees Weaker Demand Persist, Outlook Softens

Simulations Plus Inc. (NASDAQ:SLP) shares declined on Tuesday following the release of its third-quarter 2025 earnings report.

The company reported sales of $20.4 million, representing a 10% year-over-year increase, but this fell short of the consensus estimate of $20.9 million.

This miss followed preliminary third-quarter sales figures released in June, which were already lower than expectations at $19 million to $20 million, compared to a consensus of $22.78 million.

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Despite the revenue miss, Simulations Plus reported adjusted earnings of 45 cents per share, compared to 27 cents a year ago.

Revenue breakdown showed a 6% increase in software revenue to $12.6 million and a 17% increase in services revenue to $7.7 million. The company’s gross profit stood at $13.0 million, achieving a 64% margin.

However, the quarter saw a substantial net loss of $67.3 million, resulting in a loss per share of $3.35. This was primarily due to a non-cash impairment charge of $77.2 million, contrasting sharply with a net income of $3.1 million and diluted EPS of $0.15 in the prior year.

Adjusted EBITDA was $7.4 million, representing 37% of total revenue, up from $5.6 million (30% of total revenue) in the same period last year.

Looking ahead, Simulations Plus revised its fiscal 2025 adjusted earnings guidance to $0.93 to $1.06, down from the previous guidance of $1.07 to $1.20.

Similarly, the company’s fiscal 2025 sales forecast was adjusted in June to $76 million to $80 million, a reduction from the prior guidance of $90 million to $93 million and below the consensus of $82.9 million.

The anticipated adjusted EBITDA margin for fiscal 2025 also saw a downward revision, now expected to be between 23% and 27%, compared to the earlier guidance of 31% to 33%.

In June, Simulations Plus initiated a restructuring of its operations, including workforce reductions and cost-cutting measures, aimed at improving operational efficiency and reducing expenses.

William Blair analysts noted that the company’s outlook remains unchanged since June. They attribute the ongoing cautious spending by biopharma clients to uncertainties surrounding future funding, drug pricing, and potential tariffs, leading to budget cuts, project cancellations, and work postponements.

Analyst Max Smock highlighted, “While the software business remains somewhat resilient (expectation for 5% to 9% organic segment growth in fiscal 2025), we have begun to see some signs of potential softening as we head into fiscal 2026…”

In response to the challenging market, KeyBanc downgraded Simulations Plus from Overweight to Sector Weight. Analyst Scott Schoenhaus commented, “While we believe these challenges affect SLP more sharply given its customer concentration and biotech exposure, we also thought there would be opportunities with the most recent Proficiency acquisition that gave us hope that organic revenue growth could re-accelerate toward high-single digits next year (FY26) off easier comps.”

KeyBanc anticipates continued weak customer demand in the near to mid-term, with no clear signs of a biotech market rebound. This makes predicting a recovery difficult and a higher valuation hard to justify, prompting the firm to significantly cut its estimates and lower its valuation target to account for these risks and uncertainties.

Price Action: SLP stock is trading lower by 25% to $13.10 at last check Tuesday.

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