10-Q: Simulations Plus to be Acquired for $375M

Simulations Plus announces a definitive agreement to be acquired by Altaris, LLC for approximately $375 million, with the transaction expected to close in Q4 2026.

Summary

• Simulations Plus, Inc. has entered into a definitive agreement to be acquired by Altaris, LLC for approximately $375 million.
• The transaction is expected to close in the fourth quarter of calendar year 2026, subject to customary closing conditions including shareholder and regulatory approvals.
• Upon completion, the company will cease to be publicly traded on the Nasdaq Stock Market and will become a privately held entity.
• For the three months ended May 31, 2026, total revenues increased by 7% to $21.9 million, driven by a 20% increase in services revenue.
• Net income for the quarter was $3.6 million, a significant improvement from a net loss of $67.3 million in the prior year period.
• For the nine months ended May 31, 2026, total revenues increased by 5% to $64.6 million, with services revenue up 14% and software revenue down 2%.
• Net income for the nine-month period was $8.8 million, compared to a net loss of $64.0 million in the prior year period.
• The company's cash and cash equivalents, along with short-term investments, totaled $50.0 million as of May 31, 2026.

Sentiment

Score: 7

Explanation: StockSavvy.ai views this filing positively due to the strong financial performance turnaround and the strategic acquisition, which offers a premium to shareholders, despite some ongoing operational challenges.

Positives

• Total revenues for the three months ended May 31, 2026, increased by 7% to $21.9 million, primarily driven by a 20% increase in services revenue.
• Gross profit for the three months ended May 31, 2026, increased by 16% to $15.1 million, with an improved gross margin of 69% compared to 64% in the prior year.
• Research and development expenses increased by 98% to $4.1 million for the three months ended May 31, 2026, indicating investment in innovation and future growth.
• Net income for the three months ended May 31, 2026, was $3.6 million, a substantial turnaround from a net loss of $67.3 million in the same period last year.
• Total revenues for the nine months ended May 31, 2026, increased by 5% to $64.6 million, driven by a 14% increase in services revenue.
• Gross profit for the nine months ended May 31, 2026, increased to $42.2 million with a gross margin of 65%, up from 59% in the prior year.
• Net income for the nine months ended May 31, 2026, was $8.8 million, a significant improvement from a net loss of $64.0 million in the prior year period.
• Cash flow from operating activities improved to $19.4 million for the nine months ended May 31, 2026, from $12.5 million in the prior year.
• The company has $30 million remaining under its authorized share repurchase program, though repurchases are restricted by the merger agreement.

Negatives

• Software revenue decreased by 2% to $36.1 million for the nine months ended May 31, 2026, compared to the prior year period.
• The company's services gross margin was 37% for the nine months ended May 31, 2026, compared to 29% in the prior year, indicating a need for continued efficiency improvements in this segment.
• Research and development spend as a percentage of revenue increased to 15% for the nine months ended May 31, 2026, from 8% in the prior year, reflecting increased investment but also a drag on near-term profitability.
• The merger agreement imposes restrictions on certain capital allocation and corporate activities, including stock repurchases and dividends, until the transaction closes.

Risks

• The pending merger may not be completed in a timely manner or at all due to failure to satisfy closing conditions, including shareholder or regulatory approvals.
• The announcement and pendency of the merger may adversely affect relationships with customers, employees, business partners, and suppliers, potentially impacting operating results.
• There is a risk of challenges in retaining key employees during the pendency of the merger.
• The merger agreement restricts the company's business conduct prior to closing, potentially limiting opportunities or strategic initiatives.
• Significant transaction-related costs are being incurred regardless of whether the merger is completed.
• The pendency of the merger could lead to litigation or regulatory proceedings that could delay or prevent completion.
• If the merger is not completed, the company's business, financial condition, results of operations, stock price, and future prospects could be adversely affected.
• The company operates in a highly competitive and rapidly changing biopharma software and services industry.
• Macroeconomic factors, such as attention on global drug pricing, could lead to temporary reductions in R&D spending by pharmaceutical and biotech companies.

Future Outlook

The company expects to operate within the contractual limitations imposed by the merger agreement until the transaction is completed or terminated. Management anticipates that existing cash, cash equivalents, short-term investments, and cash generated from operations will be sufficient to fund operating activities and material capital expenditures for the next 12 months.

Management Comments

• Clients face challenges in developing new therapies due to time, cost, and regulatory hurdles.
• The company's software and services help clients accelerate drug development, reduce R&D costs, comply with regulations, and increase confidence in drug safety and efficacy.
• The company is investing in an integrated, cloud-enabled modeling ecosystem that connects scientific engines with AI-driven capabilities and workflow automation.

Industry Context

StockSavvy.ai notes that the acquisition of Simulations Plus by Altaris, LLC, a private equity firm focused on healthcare, signals a trend of consolidation and private equity interest in specialized software and services providers within the biopharmaceutical sector. This move is likely driven by the perceived value of companies that can accelerate drug discovery and development, a critical need in the industry.

Comparison to Industry Standards

• The company's gross margin for software revenue (87% for the nine months ended May 31, 2026) is generally higher than typical software industry benchmarks, reflecting the specialized nature of its products.
• The services gross margin (37% for the nine months ended May 31, 2026) is lower, which is common for consulting-heavy businesses and comparable to other scientific consulting firms.
• The significant increase in R&D spend as a percentage of revenue (15% for the nine months ended May 31, 2026, up from 8%) aligns with industry trends of increased investment in AI and cloud technologies for drug development platforms.

Legal Proceedings

• The company is not a party to any material legal proceedings and is not aware of any pending or threatened legal proceedings.

Related Party Transactions

• Dr. Walter Woltosz, Chairman of the Board, and his spouse entered into a Voting and Support Agreement to vote in favor of the merger.
• Transaction bonus arrangements were approved for certain executive officers and employees, payable upon consummation of the merger.

Stakeholder Impact

• Shareholders: Will receive $18.50 per share in cash, representing a premium and a complete exit from public market investment.
• Employees: May face uncertainty regarding roles and compensation post-acquisition, although transaction bonuses are planned for some.
• Customers: May experience changes in service delivery or product development focus under new ownership, though the merger agreement restricts business conduct.
• Management: Key executives are eligible for transaction bonuses tied to the merger's completion.

Next Steps

• Obtain shareholder approval for the merger.
• Receive required regulatory approvals for the merger.
• Complete the merger transaction, expected in Q4 2026.
• Transition to a privately held company post-merger.

Key Dates

Recommendation

The acquisition at a premium provides a clear exit for shareholders. However, given the pending nature of the deal and the restrictions it imposes on the company's operations, a 'hold' recommendation is appropriate until the transaction closes or further information becomes available regarding the integration post-acquisition.

Keywords

Simulations Plus, SEC Filing, 10-Q, Merger Agreement, Acquisition, Altaris, Biopharma Software, Drug Discovery, Clinical Trials, Financial Results, Quarterly Report