Simulations Plus Inc.

01/09/2026 | Press release | Distributed by Public on 01/09/2026 15:07

Quarterly Report for Quarter Ending November 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Overview
Our clients face many challenges. Developing new therapies is time-consuming and expensive, requiring an average of 10-15 years and an average cost of approximately $2.2 billion to develop a single drug. Drug sponsors must prioritize not only efficacy and safety of the drug, but also issues like drug-drug interactions, inclusion of patients representative of the indicated population, regulatory approvals, minimization of animal testing, safety and compliance during clinical trials, and commercial success. Our clients face many macro-economic issues including the current attention on global drug pricing resulting in temporary reduction in R&D spending on the part of pharmaceutical and biotech companies.
Our MIDD software and services allow clients to use modeling and simulation to accelerate drug development, reduce the costs of R&D, comply with regulatory guidance and best practices, and increase confidence in the safety and efficacy of their drugs and biologics. Our adaptive learning solutions support the success of clinical trials by accelerating recruitment of an appropriate patient population, increasing retention of participants, and by driving competency and compliance with trial protocols, while our medical communications solutions provide support in obtaining regulatory approval and commercialization of drugs.
The Company is headquartered in Research Triangle Park, North Carolina, and has a European office in Paris, France. The Company has a remote work culture that supports employee work-life balance and minimizes its carbon footprint.
Forward-Looking Statements
This document and the documents incorporated in this document by reference contain forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact contained in this document and the materials accompanying this document are forward-looking statements.
The forward-looking statements are based on the beliefs of our management, as well as assumptions made by and information currently available to our management. Frequently, but not always, forward-looking statements are identified by the use of the future tense and by words such as "believes," "expects," "anticipates," "intends," "will," "may," "could," "would," "projects," "continues," "estimates," or similar expressions. Forward-looking statements are not guarantees of future performance and actual results could differ materially from those indicated by the forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our or our industry's actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by the forward-looking statements.
The forward-looking statements contained or incorporated by reference in this document are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. These statements include declarations regarding our plans, intentions, beliefs, or current expectations.
Among the important factors that could cause actual results to differ materially from those indicated by forward-looking statements are the risks and uncertainties described under "Risk Factors" in our Annual Report on Form 10-K for the year ended August 31, 2025, filed with the Securities and Exchange Commission ("SEC") on December 1, 2025, and elsewhere in this document and in our other filings with the SEC.
Forward-looking statements are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this document are made as of the date of this document and we do not undertake any obligation to update forward-looking statements to reflect new information, subsequent events, or otherwise.
Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Results of Operations
Comparison of Three Months Ended November 30, 2025, and November 30, 2024
(in thousands) Three Months Ended % of Revenue
November 30, 2025 November 30, 2024 November 30, 2025 November 30, 2024 $ Change % Change
Revenues
Software $ 8,883 $ 10,715 48 % 57 % $ (1,832) -17 %
Services 9,538 8,209 52 % 43 % 1,329 16 %
Total revenues 18,421 18,924 100 % 100 % (503) -3 %
Cost of revenue
Software 1,412 2,638 8 % 14 % (1,226) -46 %
Services 6,118 6,068 33 % 32 % 50 1 %
Total cost of revenues 7,530 8,706 41 % 46 % (1,176) -14 %
Gross profit 10,891 10,218 59 % 54 % 673 7 %
Research and development 2,980 1,848 16 % 10 % 1,132 61 %
Sales and marketing 3,179 2,851 17 % 15 % 328 12 %
General and administrative 4,019 5,393 22 % 28 % (1,374) -25 %
Total operating expenses 10,178 10,092 55 % 53 % 86 1 %
Income from operations 713 126 4 % 1 % 587 466 %
Other income, net 257 144 1 % 1 % 113 78 %
Income before income taxes 970 270 5 % 1 % 700 259 %
Income tax expense (294) (64) -2 % 0 % (230) -359 %
Net income $ 676 $ 206 4 % 1 % $ 470 228 %
Revenues
Revenues decreased by $0.5 million, or 3%, to $18.4 million for the three months ended November 30, 2025, compared to $18.9 million for the three months ended November 30, 2024. This decrease is primarily due to a $1.8 million, or 17% decrease, in software-related revenue and a $1.3 million, or 16%, increase in service-related revenue when compared to the three months ended November 30, 2024. The software-related revenue decrease of $1.8 million, or 17%, compared to the three months ended November 30, 2024, was primarily due to a $1.4 million decline in revenue from Clinical Operations and a $0.4 million decline in revenue from Development. The service-related revenue increase of $1.3 million, or 16%, compared to the three months ended November 30, 2024, was primarily due to organic revenue growth of $0.8 million from Commercialization and $0.5 million from Development.
Cost of revenues
Cost of revenues decreased by $1.2 million, or 14%, for the three months ended November 30, 2025, compared to the three months ended November 30, 2024. This decrease is primarily due to a $1.2 million, or 46%, decrease in software-related cost and a $0.1 million, or 1%, decrease in service-related costs. The decrease reflects lower software-related costs, partially offset by higher services-related costs, consistent with the period's revenue mix and delivery activity.
The software-related costs decrease of $1.2 million, or 46%, compared to the three months ended November 30, 2024, was primarily due to less amortization of $0.8 million as a result the of Pro-ficiency developed technology being impaired in the third quarter of fiscal year 2025 and lower capitalized software amortization costs of $0.1 million.
The service-related costs decreased $0.1 million, or 1%, compared to the three months ended November 30, 2024, was primarily due to a $0.3 million reclassification of certain costs from general, and administrative ("G&A") to cost of revenues to better align expenses with service delivery, and higher pass-through costs billed to a customer of $0.7 million associated with specific client engagements. These increases were partially offset by lower compensation-related costs as a result of the approximately 11% headcount reduction implemented in the third quarter of fiscal year 2025.
Gross profit
Gross profit increased $1.5 million, or 15% to $10.9 million for the three months ended November 30, 2025, compared to $10.2 million for the three months ended November 30, 2024.
Software gross profit decreased by $0.6 million primarily due to lower software revenue, particularly in Clinical Operations and Development solutions, offset by lower software-related costs, including reduced amortization.
Services gross profit increased by $1.4 million, primarily due to higher services revenue driven by increased client services activity and headcount reduction implemented in the third quarter of fiscal 2025, partially offset by higher delivery costs, and higher pass-through costs on customer engagements.
Overall gross margin was 59% for the three months ended November 30, 2025, compared to 54% for the three months ended November 30, 2024, primarily from a decrease in software amortization and by the effect of pass-through costs associated with certain services engagements.
Research and development
We incurred $3.9 million of research and development costs during the three months ended November 30, 2025. Of this amount, $0.9 million was capitalized as part of capitalized software development costs, and $3.0 million was expensed. We incurred $2.6 million of research and development costs during the three months ended November 30, 2024. Of this amount, $0.7 million was capitalized, and $1.8 million was expensed. Research and development spend increased by $1.3 million, or 51%, for the three months ended November 30, 2025, compared to the three months ended November 30, 2024, reflecting higher investment in product and platform development activities, including continued enhancement and expansion of our software offerings and related capabilities. The increase was primarily attributable to higher personnel-related costs, consistent with increased efforts to support these development initiatives.
R&D spend as a percentage of revenue increased to 16% for the three months ended November 30, 2025, from 10% for the three months ended November 30, 2024 representing our continued investment in innovation for future growth. Total R&D cost (defined as capitalized R&D plus R&D expense) was 21% of revenue for the three months ended November 30, 2025, compared to 14% for the three months ended November 30, 2024.
Sales and marketing expenses
Sales and marketing expenses increased by $0.3 million, or 12%, to $3.2 million for the three months ended November 30, 2025, compared to $2.9 million for the three months ended November 30, 2024. Sales and marketing as a percentage of revenue increased to 17% for the three months ended November 30, 2025, from 15% for the three months ended November 30, 2024. The increase primarily reflected higher variable selling costs and customer-facing activities to support commercial execution and demand generation across our offerings.
General, and administrative expenses
G&A expenses decreased by $1.4 million, or 25%, to $4.0 million for the three months ended November 30, 2025, compared to $5.4 million for the three months ended November 30, 2024. G&A as a percentage of revenue decreased to 22% for the three months ended November 30, 2025, from 28% for the three months ended November 30, 2024. The decrease primarily reflected lower corporate support costs and reduced non-recurring spending. In addition, merger and acquisition-related costs decreased due to lower deal activity and associated professional fees in the current period. Facilities costs decreased as we continued to optimize our real estate footprint consistent with a remote-first operating model.
Other income
Total other income was $0.3 million for the three months ended November 30, 2025, compared to total other income of $0.1 million for the three months ended November 30, 2024. Interest income increased by $0.1 million due to higher balances of cash invested in interest-bearing accounts.
Income tax expense
The expense for income taxes was $0.3 million for the three months ended November 30, 2025, compared to $0.1 million
for the three months ended November 30, 2024. The Company tax rate increased to 30.3% for the three months ended November 30, 2025, compared to 23.7% for the three months ended November 30, 2024. The income tax rate increase is primarily due to favorable discrete items recognized for the three month ended November 30, 2024 that did not recur for the three months ended November 30, 2025.
Liquidity and Capital Resources
Our principal sources of capital have been cash flows from our operations. We expect existing cash, cash equivalents, short-term investments, cash generated by1 ongoing operations, and working capital will be sufficient to fund our operating activities and cash commitments for investing and financing activities and material capital expenditures for the next 12 months and beyond.
We continue to seek opportunities for strategic acquisitions, investments, and partnerships. If one or more strategic opportunities are identified, a substantial portion of our cash reserves may be required to complete the transaction. If we identify an attractive strategic opportunity that would require more cash to complete than we are willing or able to use from our cash reserves, we may consider financing options to complete the transaction, including obtaining loans or selling our securities. Additionally, our quest for strategic opportunities could result in a significant change to our liquidity position and/or our results of operations if any such transactions are completed.
Except as discussed elsewhere in this Quarterly Report, we are not aware of any trends or demands, commitments, events, or uncertainties that are reasonably likely to result in a decrease in liquidity of our assets.
Cash, Cash Equivalents, and Investments
At November 30, 2025, the Company had $30.2 million in cash and cash equivalents, $5.5 million in short-term investments, and net working capital of $47.8 million. Short-term investments consist of CD's and cash equivalents. The investments are U.S.-dollar-denominated securities.
Cash Flows
Operating Activities
Net cash provided by operating activities was $4.2 million for the three months ended November 30, 2025, compared to net cash used by operating activities of $1.3 million for the three months ended November 30, 2024. The $5.5 million improvement was driven primarily by a $5.8 million year-over-year improvement in working capital cash flows, largely reflecting lower variable compensation of $1.8 million in the prior period, a $2.0 million higher contribution from deferred revenue, reflecting higher billings collected in advance and timing of revenue recognition, and a $1.2 million improvement in accounts receivable cash usage due to the timing of billings and collections. These favorable changes were partially offset by a $1.7 million increase in prepaid expenses and other assets and a $0.3 million decrease in cash generated from operating results before working capital changes (defined as net (loss) income adjusted for non-working capital items).
Net cash used in operating activities was $1.3 million for the three months ended November 30, 2024. While we generated cash from operating results before working capital changes, working capital was a net use of cash, driven primarily by a $3.7 million increase in accounts receivable resulting from customer invoicing that occurred closer to quarter-end and the timing of collections, and a $4.1 million decrease in other liabilities, primarily reflecting cash payments of $1.8 million for variable compensation, $1.1 million of payments of accrued expenses, and one-time reorganization costs of $0.3 million. These uses of cash were partially offset by a $1.2 million increase in deferred revenue, reflecting customer billings collected in advance and timing of revenue recognition, a $0.5 million increase in accounts payable, and a $0.7 million decrease in prepaid expenses and other assets.
Investing Activities
Net cash used in investing activities during the three months ended November 30, 2025, was $4.9 million. Investing cash flows primarily reflect deployment and rebalancing of our short-term investment portfolio and capitalized software development to support product and platform enhancements. During the quarter, we invested $5.5 million in short-term investments as part of our treasury strategy to prudently invest excess cash while preserving liquidity and capital, and we incurred $0.9 million of capitalized computer software development costs to support ongoing product development and technology improvements. These uses of cash were partially offset by $1.5 million of maturities of short-term investments as securities matured in the normal course of portfolio management.
Net cash used in investing activities during the three months ended November 30, 2024, was $3.1 million. Investing cash flows primarily reflect deployment and rebalancing of our short-term investment portfolio, capitalized software development to support product and platform enhancements, and certain strategic investment and acquisition-related items. During the quarter, we invested $3.5 million in short-term investments as part of our treasury strategy to prudently invest excess cash while preserving liquidity and capital, and we incurred $0.6 million of capitalized computer software development costs to support ongoing product development and technology improvements. We also used cash for investing in intangible assets of $0.2 million, and a net working capital and excess cash settlement payment of $0.2 million related to the Pro-ficiency acquisition. These uses of cash were partially offset by $1.5 million of maturities of short-term investments as securities matured in the normal course of portfolio management.
Financing Activities
Net cash provided by financing activities during the three months ended November 30, 2025, was less than $0.1 million, consisting of proceeds from the exercise of stock options.
Net cash provided by financing activities during the three months ended November 30, 2024, was $0.3 million, primarily due to proceeds from the exercise of stock options.
Share Repurchases
For the three months ended November 30, 2025, and November 30, 2024, respectively, we did not repurchase any shares of Company stock. As of November 30, 2025, $30 million remains available for additional repurchases under our authorized repurchase program. However, we are not obligated to repurchase any additional shares, and the timing, manner, price, and actual amount of further share repurchases will depend on a variety of factors, including stock price, market conditions, other capital management needs and opportunities, and corporate and regulatory considerations. The share repurchase program has no expiration date but may be terminated at any time at our Board of Directors' discretion.
Critical Accounting Estimates
Estimates
Our financial statements and accompanying notes are prepared in accordance with GAAP. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. Actual results could differ from those estimates. Critical Accounting Estimates for us include revenue recognition, accounting for capitalized software development costs, accounting for intangible assets and goodwill, valuation of stock options, business acquisitions and accounting for income taxes.
Revenue Recognition
We generate revenue primarily from the sale of software licenses, providing consulting services, and customizing a software platform tailored to the pharmaceutical industry for drug development.
The Company determines revenue recognition through the following steps:
i.Identification of the contract, or contracts, with a customer
ii.Identification of the performance obligations in the contract
iii.Determination of the transaction price
iv.Allocation of the transaction price to the performance obligations in the contract
v.Recognition of revenue when, or as, the Company satisfies a performance obligation
The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. Contracts generally have fixed pricing terms and are not subject to variable pricing. The Company considers the nature and significance of each specific performance obligation under a contract when allocating the proceeds under each contract. Accounting for contracts includes significant judgment in the estimation of hours/cost to be incurred on consulting contracts, and the de minimisnature of the post-sales costs associated with software sales.
Capitalized Computer Software Development Costs
Software development costs are capitalized in accordance with ASC 985-20, "Costs of Software to Be Sold, Leased, or Marketed." Capitalization of software development costs begins upon the establishment of technological feasibility and is discontinued when the product is available for sale. The establishment of technological feasibility and the ongoing assessment for recoverability of capitalized computer software development costs require considerable judgment by management with respect to certain external factors including, but not limited to, technological feasibility, anticipated future gross revenues, estimated economic life, and changes in software and hardware technologies. Capitalized software development costs are comprised primarily of salaries and direct payroll-related costs and the purchase of existing software to be used in the Company's software products. Total capitalized computer software development costs were $0.9 million and $0.7 million for the three months ended November 30, 2025, and November 30, 2024, respectively.
Amortization of capitalized computer software development costs is calculated on a product-by-product basis on the straight-line method over the estimated economic life of the products, not to exceed five years. Amortization of software development costs amounted to $0.7 million and $0.8 million, respectively, for the three months ended November 30, 2025, and November 30, 2024, respectively. We expect future amortization expense to vary due to variations in capitalized computer software development costs.
We test capitalized computer software development costs for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Intangible Assets and Goodwill
The Company performs valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination and recognizes the assets acquired and liabilities assumed at their acquisition-date fair value. Acquired intangible assets include customer relationships, software, trade names, and noncompete agreements. The Company determines the appropriate useful life by performing an analysis of expected cash flows based on historical experience of the acquired businesses. Intangible assets are amortized over their estimated useful lives using the straight-line method, which approximates the pattern in which the majority of the economic benefits are expected to be consumed.
Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets. Goodwill is not amortized; instead, it is tested for impairment annually or when events or circumstances change that would indicate that goodwill might be impaired. Events or circumstances that could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of the Company's use of the acquired assets or the strategy for the Company's overall business, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.
Goodwill is tested for impairment at the reporting unit level, which is one level below or the same as an operating segment. As of November 30, 2025, the Company determined that it had two reporting units - Software and Services.
As of November 30, 2025, the entire balance of goodwill was attributed to two of the Company's reporting units, Software and Services. Intangible assets subject to amortization are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable.
No impairment losses were recorded during the three months ended November 30, 2025, and November 30, 2024, respectively.
Business Acquisitions
The Company accounted for the acquisitions using the acquisition method of accounting where the assets acquired and liabilities assumed are recognized based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair value of certain acquired assets and liabilities is subjective in nature and often involves the use of significant estimates and assumptions, including, but not limited to, the selection of appropriate valuation methodology, projected revenue, expenses, and cash flows, weighted-average cost of capital, discount rates, and estimates of terminal values. Business acquisitions are included in the Company's consolidated financial statements as of the date of the acquisition.
Research and Development Costs
R&D costs are charged to expense as incurred until technological feasibility has been established, or when the costs are for maintenance and minor modification of existing software products that do not add significant new capabilities to the products. These costs include salaries and benefits, laboratory experiments, and purchased software that was developed by other companies and incorporated into, or used in the development of, our final products.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740-10, "Income Taxes," which requires the recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been included in the financial statements or tax returns.
Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.
Stock-Based Compensation
The Company accounts for stock options in accordance with ASC 718-10, "Compensation-Stock Compensation." Under this method, compensation costs include the estimated grant-date fair value of awards amortized over the options' vesting period. Stock-based compensation costs, not including shares issued to directors for services, were $1.5 million and $1.7 million, for the three months ended November 30, 2025, and November 30, 2024, respectively.
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