DEF 14A: Simulations Plus Seeks Equity Plan Boost Amidst Financial Dip

Simulations Plus, Inc. will hold its Annual Meeting on February 12, 2026, seeking shareholder approval for director elections, auditor ratification, and a significant increase in its equity incentive plan shares, following a fiscal year marked by a net loss and auditor changes.

Summary

• The Annual Meeting of Shareholders is scheduled for February 12, 2026, at 2:00 p.m. Pacific Time, to be held virtually.
• Shareholders of record as of December 15, 2025, are eligible to vote on the proposals.
• Key proposals include the election of four directors (Dr. Daniel Weiner, Dr. Walter S. Woltosz, Dr. John K. Paglia, and Sharlene Evans), the ratification of Rose, Snyder & Jacobs LLP (RSJ) as the independent registered public accounting firm for fiscal year ending August 31, 2026, and the approval of an amendment to the 2021 Equity Incentive Plan.
• The proposed amendment to the 2021 Equity Incentive Plan seeks to increase the number of shares authorized for issuance from 2,500,000 to 3,450,000 shares of common stock.
• The Board of Directors unanimously recommends voting FOR all director nominees and FOR each of the other proposals.
• The company dismissed Grant Thornton LLP and re-appointed RSJ as its independent registered public accounting firm for fiscal year 2025, with Grant Thornton LLP disagreeing with the company's statements regarding unresolved matters related to segment reporting and internal controls.
• Total fees billed by RSJ for fiscal year 2025 were $370,500, a decrease from $479,500 in fiscal year 2024.
• As of December 15, 2025, there were 20,146,585 shares of common stock issued and outstanding.
• The 2021 Plan currently has 2,568,762 shares subject to outstanding awards and 410,131 shares available for future awards; the proposed amendment would add 950,000 shares.
• Non-executive director compensation, which was temporarily reduced by 10% in October 2024, was restored to prior levels in October 2025.
• The company underwent an internal reorganization in the fourth quarter of fiscal year 2025, shifting to a function-based organizational structure.
• The CEO to median employee pay ratio for fiscal year 2025 was 8 to 1, with the CEO's total compensation at $1,096,572 and the median employee's at $142,614.
• The company reported a net loss of $64,718,000 for fiscal year 2025, a significant decline from net income in previous years.

Sentiment

Score: 3

Explanation: The filing reveals a significant net loss for fiscal year 2025 and substantial underperformance in Total Shareholder Return compared to its peer group. The negative 'Compensation Actually Paid' for executives further highlights this poor financial outcome. The auditor change and subsequent disagreement with Grant Thornton LLP also raise concerns about financial reporting integrity and internal controls. While there are positive aspects related to ESG initiatives and employee engagement, the core financial results and governance red flags are concerning.

Positives

• The company demonstrates a strong commitment to ESG practices, including recycling programs, e-waste recycling, and using IT hardware vendors that embrace environmental sustainability.
• Server consolidation in U.S. offices led to a 75% reduction in energy usage compared to the prior year, contributing to a reduced carbon footprint.
• The company maintains a remote-first work culture, which reduces emissions from employee commuting.
• High employee engagement is indicated by a voluntary turnover rate of under 6% in fiscal year 2024.
• Simulations Plus, Inc. was recognized by Comparably in 2025 for 'Best Company for Diversity,' 'Best Company for Women,' 'Best Company for Leadership,' and 'Best Company for Benefits'.
• The workforce is highly skilled, with over 99% full-time employees and more than 60% of technical and scientific staff holding advanced degrees.
• The company shows strong gender equity, with women comprising 46% of the total workforce and 47% of the scientific staff.
• Competitive total rewards program includes health and dental insurance (employee premiums paid by company), disability and life insurance, flexible time off, parental leave, and training/development opportunities.
• Executive officers, including the CEO and CFO, received base salary increases effective October 27, 2025.

Negatives

• The company reported a significant net loss of $64,718,000 for fiscal year 2025, a substantial reversal from net income of $9,954,000 in FY2024 and $9,961,000 in FY2023.
• Company Total Shareholder Return (TSR) for 2025 was $24 (based on a $100 initial investment), significantly underperforming the Peer Group TSR of $44.
• The 'Compensation Actually Paid' (CAP) for the CEO in 2025 was -$15,171, a drastic decrease from $1,386,522 in 2024, indicating a significant decline in the fair value of equity awards.
• The average 'Compensation Actually Paid' for non-CEO Named Executive Officers also decreased substantially to $98,046 in 2025 from $689,116 in 2024.
• Grant Thornton LLP, previously engaged as the independent registered public accounting firm, disagreed with the company's statements regarding unresolved matters related to segment reporting and internal controls over financial reporting upon their dismissal.

Risks

• The competitive market for quality personnel poses a risk to the company's ability to attract and retain highly qualified officers, directors, employees, and service providers.
• Failure to approve the amendment to the 2021 Equity Incentive Plan could result in an insufficient number of shares for adequate equity incentive compensation, potentially hindering talent attraction and retention.
• Risks related to accounting and financial reporting, internal controls, and financial statement audits are highlighted by the recent auditor change and disagreement with Grant Thornton LLP.
• Strategic and business risks, including those related to product developments, company culture, information technology, and cybersecurity, are overseen by the Board.
• ESG factors, including climate risks and human rights, are identified as areas requiring ongoing monitoring and management.
• Tax consequences related to equity awards, such as potential penalties under Section 409A of the Code and excise taxes under Sections 280G and 4999 of the Code, could impact participants and the company.
• The company's Clawback Policy indicates a risk of accounting restatements due to material noncompliance with financial reporting requirements, which could lead to recovery of incentive-based compensation from executive officers.

Future Outlook

The company intends to file a registration statement on Form S-8 for the additional shares under the 2021 Plan if the amendment is approved by shareholders. For fiscal year 2026, the CEO's target bonus will be linked to company performance metrics including Revenue, Adjusted EBITDA, and Adjusted Diluted EPS, as well as individual performance criteria. The company plans to increase its focus on identifying future leaders and strengthening leadership development and succession planning in the coming year.

Management Comments

• Our Board of Directors has carefully reviewed and considered the foregoing proposals and has concluded that each proposal is in the best interests of the Company and its shareholders.
• We believe that providing equity incentives as a component of our compensation and total rewards offering enhances our ability to attract and retain highly qualified officers, directors, and employees, and to motivate such individuals to serve the Company and to expend maximum effort to improve our business results by providing to those individuals an opportunity to acquire or increase a direct proprietary interest in our operations and future success.
• The Board believes that an increase in the number of authorized shares of common stock is necessary for the continued optimal use of the 2021 Plan.
• The Company does not believe this will be a sufficient number of shares to provide adequate equity incentive compensation to Company employees and directors during fiscal 2026 (if the Plan Amendment is not approved).
• We are committed to providing consistent and excellent return to our shareholders, all while maintaining a strong sense of good corporate citizenship that places a high value on the welfare of our employees, the communities in which we operate, and the world as a whole.
• We believe that effectively prioritizing and managing our Environmental, Social, and Governance (ESG) factors will help create long-term value for our investors.
• We believe we are in compliance in all material respects with all applicable environmental laws. Presently, we do not anticipate that such compliance will have a material effect on capital expenditures, earnings, or competitive position with respect to any of our operations.
• Our continued success depends on attracting and retaining top talent.
• The Compensation Committee has determined that our compensation programs are designed and administered with the appropriate balance of risk and reward in relation to our overall business strategy and such programs do not encourage our executives to take unnecessary or excessive risks that are reasonably likely to have a material adverse effect on the Company.

Industry Context

Simulations Plus, Inc. operates in the specialized healthcare information technology and data analytics software and services industry, particularly serving pharmaceutical and biotech companies with quantitative systems pharmacology software and services. The company's emphasis on attracting and retaining talent through equity incentives reflects the competitive nature of this high-tech, specialized sector. Its commitment to ESG practices aligns with broader industry trends towards corporate social responsibility and sustainability, which are increasingly important for stakeholders across all sectors.

Comparison to Industry Standards

• The company's Total Shareholder Return (TSR) for 2025 was $24 (based on a $100 initial investment), significantly underperforming the S&P 600 Health Care Technology Industry Index (SP600-351030) TSR of $44, indicating a notable lag behind industry benchmarks.
• A compensation benchmarking study with an external consultant (Pearl Meyer) was conducted to align executive compensation practices with a comparable peer group, suggesting an effort to maintain competitive compensation standards within the industry.

Management Changes

Corporate Governance

Related Party Transactions

• The company has not entered into any transactions with directors, nominees, officers, or principal shareholders, or their associates/affiliates, exceeding $120,000 at the end of fiscal year 2025, nor is it currently considering any such proposed transactions where a related person would have a direct or indirect material interest.
• A written Related Party Transaction Policy has been adopted to govern the review, approval, and ratification of transactions in which the company is a participant and any related person has a direct or indirect material interest exceeding $120,000.

Stakeholder Impact

• Shareholders: Potentially negative impact due to significant net loss in FY2025 and underperformance in Total Shareholder Return compared to peers. The proposed increase in equity incentive plan shares could lead to dilution. Corporate governance changes and auditor issues may affect investor confidence.
• Employees: Positive impact from competitive compensation, benefits, flexible work arrangements, parental leave, and training programs. The equity incentive plan (if approved) offers opportunities for increased ownership. Internal reorganization may affect roles and responsibilities.
• Customers: Positive impact from the company's commitment to data privacy, security, and ethical business practices, ensuring reliable software products and consulting services.
• Management: Executive compensation adjustments, including salary increases, and the equity incentive plan are designed to attract and retain top talent. The internal reorganization has led to new roles and responsibilities for several executive officers.
• Community/Environment: Positive impact from the company's ESG initiatives, including recycling programs, reduced energy consumption, and community engagement activities like donating STEM backpacks.

Next Steps

• Shareholders will vote on director elections, auditor ratification, and the equity incentive plan amendment at the Annual Meeting on February 12, 2026.
• If the Plan Amendment is approved, the company intends to file a registration statement on Form S-8 with the SEC for the additional shares.
• Final voting results from the Annual Meeting will be reported in a Current Report on Form 8-K filed with the SEC within four business days after the meeting.
• The company plans to place greater emphasis on identifying future leaders and strengthening leadership development and succession planning in the coming year.
• The Audit Committee will reconsider its selection of RSJ if shareholders do not ratify the appointment of the independent registered public accounting firm.

Key Dates

Recommendation

The company reported a substantial net loss of $64.7 million for fiscal year 2025, a sharp reversal from prior year profits. Its Total Shareholder Return significantly underperformed the S&P 600 Health Care Technology Industry Index. Furthermore, the abrupt change in auditors, including the dismissal and re-appointment of RSJ, and the explicit disagreement from Grant Thornton LLP regarding unresolved matters, raise serious concerns about financial reporting integrity and internal controls. While the company highlights positive ESG and employee engagement initiatives, these do not offset the severe financial deterioration and governance red flags. The negative 'Compensation Actually Paid' for executives further underscores the poor performance. These factors collectively point to significant underlying issues that warrant a sell recommendation for a seasoned investor.

Keywords

Simulations Plus, SEC filing, Proxy Statement, Equity Incentive Plan, Executive Compensation, Corporate Governance, Auditor Ratification, Board of Directors, Shareholder Meeting, Financial Performance, ESG, Pharmaceutical Software, Biotech Services, Pharmacometrics