8-K: Simulations Plus Reports Q3 FY26 Results, Merger Agreement

Simulations Plus announced third quarter fiscal 2026 financial results, showing a 7% increase in total revenue driven by services, and confirmed a definitive merger agreement to be acquired by Altaris, LLC.

Summary

• Simulations Plus reported financial results for its third quarter ended May 31, 2026.
• Total revenue increased by 7% to $21.9 million compared to the third quarter of fiscal year 2025.
• Software revenue remained flat at $12.6 million, constituting 58% of total revenue.
• Services revenue saw a significant increase of 20% to $9.3 million, making up 42% of total revenue.
• Gross profit rose to $15.1 million with a gross margin of 69%, up from 64% in the prior year's quarter.
• Net income for the quarter was $3.6 million, with diluted earnings per share of $0.18, a substantial improvement from a net loss of $67.3 million and diluted losses per share of $3.35 in Q3 FY25.
• Adjusted EBITDA was $7.9 million (36% of total revenue), compared to $7.4 million (37% of total revenue) in Q3 FY25.
• Adjusted net income was $6.1 million, with adjusted diluted EPS of $0.30, down from $9.0 million and $0.45 respectively in Q3 FY25.
• For the nine months ended May 31, 2026, total revenue increased 5% to $64.6 million.
• The company entered into a definitive merger agreement on June 15, 2026, to be acquired by affiliates of Altaris, LLC, with an expected closing in the fourth quarter of calendar 2026.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this as a moderately positive report, with strong revenue growth in services and a significant turnaround in GAAP profitability. However, the flat software revenue and decline in adjusted metrics temper the overall positive sentiment, alongside the pending acquisition which introduces a different dynamic.

Positives

• Total revenue increased by 7% to $21.9 million in Q3 FY26.
• Services revenue grew by a strong 20% to $9.3 million in Q3 FY26.
• Gross profit increased to $15.1 million, and gross margin improved to 69% from 64% in Q3 FY25.
• Significant improvement in net income, turning a large net loss in the prior year's quarter ($67.3 million) into a profit of $3.6 million in Q3 FY26.
• Diluted EPS improved from a loss of $3.35 to $0.18 in Q3 FY26.
• Total revenue for the nine months increased by 5% to $64.6 million.
• Gross profit for the nine months increased to $42.2 million, with gross margin improving to 65% from 59% in the prior year.
• Net income for the nine months improved to $8.8 million from a net loss of $64.0 million in the prior year.
• Cash and cash equivalents increased to $35.3 million as of May 31, 2026, from $30.9 million as of August 31, 2025.
• Total backlog for services stands at $23.3 million.

Negatives

• Software revenue was flat year-over-year in Q3 FY26.
• Adjusted EBITDA margin slightly decreased from 37% in Q3 FY25 to 36% in Q3 FY26.
• Adjusted net income decreased to $6.1 million from $9.0 million in Q3 FY25.
• Adjusted diluted EPS decreased to $0.30 from $0.45 in Q3 FY25.
• Software revenue decreased 2% for the nine months ended May 31, 2026.
• Adjusted EBITDA margin for the nine months decreased from 30% to 31% (slight increase, but contextually lower than prior year's adjusted margin percentage).
• Adjusted net income decreased to $15.7 million from $18.7 million for the nine months.
• Adjusted diluted EPS decreased to $0.78 from $0.93 for the nine months.

Risks

• The definitive merger agreement with Altaris, LLC involves risks and uncertainties, including the possibility that the transaction may not be completed.
• Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied.
• Factors that could cause actual results to differ include the effectiveness of the company's operational structure, ability to maintain competitive advantages, commercialization of AI and cloud-enabled solutions, evolving regulatory and data privacy standards for AI, customer acceptance of new software, general pharmaceutical industry economics, financing growth, attracting and retaining technical staff, market conditions, macroeconomic factors, and market sustainability.
• Renewal rates for software were impacted by client consolidations and site closures.
• The company has not reconciled forward-looking guidance for adjusted EBITDA or adjusted diluted EPS to GAAP measures due to variability in costs related to acquisitions, financings, and employee stock compensation programs.

Future Outlook

The company has provided guidance for fiscal year 2026, projecting total revenue between $79 million and $82 million, representing 0% to 4% growth. The software revenue mix is expected to be between 57% and 62%. Adjusted EBITDA margin is projected to be between 26% and 30%, and Adjusted Diluted EPS is forecasted to be between $0.75 and $0.85.

Management Comments

• "We delivered solid third quarter results, with revenue increasing 7%, highlighted by strength in our services revenue, which grew 20%, while software revenue was flat year over year," said Shawn O'Connor, Chief Executive Officer of Simulations Plus.
• "Our performance reflects the resilience of our business model and the value our solutions provide to clients across the drug development lifecycle."
• "As we move toward the expected closing in the fourth quarter of calendar 2026, we remain focused on delivering for our clients and executing at a high level throughout this transition."

Industry Context

StockSavvy.ai notes that Simulations Plus operates in the specialized field of model-informed and AI-accelerated drug development, a sector experiencing significant growth due to the increasing complexity and cost of pharmaceutical R&D. The company's focus on software and services for this niche positions it within a trend of technological adoption aimed at improving drug discovery and development efficiency. The announced merger with Altaris, LLC, a private equity firm, suggests a strategic move to leverage external capital for further expansion or development, a common occurrence for companies in high-growth technology sectors.

Comparison to Industry Standards

• The reported revenue growth of 7% for the quarter and 5% year-to-date for Simulations Plus is moderate within the broader software and technology sectors, but potentially strong for a specialized B2B scientific software provider.
• The shift in revenue mix towards services (42% of total revenue in Q3 FY26) while software revenue is flat indicates a potential area for strategic focus or a temporary market dynamic.
• The improvement in GAAP net income and EPS from a significant loss to profitability is a key positive indicator, though adjusted metrics show a decline, suggesting that non-recurring or non-operational items heavily influenced prior year results.
• The Adjusted EBITDA margin of 36% for Q3 FY26 is a healthy margin, typical for established software companies with recurring revenue models, though slightly down from 37% in the prior year.
• Competitors in the drug development software space include companies like Certara, Schrödinger, and smaller specialized providers. Direct comparisons are difficult without specific segment data from these competitors, but Simulations Plus's reported margins and revenue growth are generally in line with or slightly below high-growth SaaS companies, but potentially competitive within its specific niche.

Stakeholder Impact

• Shareholders: The merger agreement with Altaris, LLC offers a potential exit for shareholders, with the terms of the acquisition to be finalized.
• Employees: The transition period and potential integration under new ownership may create uncertainty or new opportunities.
• Clients: The company emphasizes continued focus on delivering value to clients throughout the transition.
• Suppliers/Creditors: No specific impact mentioned, but standard business operations are expected to continue.

Next Steps

• Focus on delivering for clients and executing at a high level during the transition period leading up to the merger closing.
• Complete the acquisition by Altaris, LLC, expected in the fourth quarter of calendar 2026.

Key Dates

Recommendation

The company is undergoing a significant transition with a pending acquisition. While Q3 results show improved GAAP profitability and strong services growth, the flat software revenue and decline in adjusted metrics warrant a cautious approach. The acquisition by Altaris, LLC introduces a new ownership structure and strategic direction, making it prudent to hold and await further clarity on the integration and future strategy post-acquisition rather than making a decisive buy or sell recommendation at this juncture.

Keywords

Simulations Plus, SEC Filing, 8-K, Financial Results, Q3 FY26, Drug Development, AI, Model-Informed, Merger Agreement, Altaris LLC, Software Revenue, Services Revenue, Adjusted EBITDA, Adjusted EPS