Simulations Plus Grows Revenue and Profits in Q2 2026, Lowers EPS Guidance on Tax Rate Adjustment

Q2 2026 Sees Revenue and Profit Growth Across Software and Services

Simulations Plus (SLP) delivered a solid Q2 fiscal 2026, reporting revenue of $24.29 million, up 8% year-over-year, with both its software and services divisions contributing to the gain. Software revenue rose 9% to $14.64 million, making up 60% of total sales, while services revenue climbed 8% to $9.66 million. Gross profit jumped to $16.14 million (66% margin), and net income hit $4.54 million, a significant improvement over last year’s $3.07 million.

Profit Margins Improve as Adjusted EBITDA and EPS Surge

Profitability metrics outpaced revenue growth, with adjusted EBITDA up 33% to $8.74 million (36% margin), and adjusted diluted EPS rising to $0.35 from $0.31 a year ago. Management pointed to robust performance in drug discovery and development solutions, as well as strong services bookings and growing client demand, evidenced by an 18% increase in backlog.

EPS Guidance Cut as Effective Tax Rate Rises

Despite operational momentum, management revised its fiscal 2026 adjusted EPS guidance downward from $1.03–$1.10 to $0.75–$0.85, as the expected effective tax rate moves up to 23–25% (from 12–14%). Revenue and profitability forecasts otherwise remain unchanged, with revenue expected to hit $79–$82 million and adjusted EBITDA margins of 26–30%.

Management Sees Favorable Market Conditions, Despite Higher Costs

CEO Shawn O’Connor noted that favorable market dynamics—such as improved funding environments and regulatory support for innovative drug development—are supporting client renewals and new business. He also highlighted strong momentum in both software renewals and client wins, providing a positive outlook for continued growth.

Balance Sheet Remains Strong

Simulations Plus ended Q2 with $25.73 million in cash and $16.11 million in short-term investments, providing stability for ongoing investments and potential M&A. The company’s total assets reached $146.48 million, with shareholder equity at $133.77 million, reflecting a strong financial position.

Key Takeaway for Investors

While Simulations Plus posted robust Q2 results and continues to benefit from industry tailwinds, investors should keep an eye on the impact of higher taxes on bottom-line growth for FY 2026. The company’s growth in recurring software revenue, backlog, and resilience in service demand underline its long-term positioning, but the guidance cut highlights the importance of monitoring tax and cost structures going forward.

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