Simulations Plus (NASDAQ: SLP) posts Q3 profit and agrees to $18.50 buyout
Filing Impact
Filing Sentiment
Form Type
10-Q
Rhea-AI Filing Summary
Simulations Plus reported stronger results for the quarter ended May 31, 2026 and outlined a pending go‑private transaction. Quarterly revenue grew 7% year over year to $21.9 million, driven by a 20% increase in services revenue while software revenue was flat. Gross margin improved to 69% from 64%, helped by lower software amortization and better services utilization.
The company posted net income of $3.6 million, or $0.18 per diluted share, versus a $67.3 million loss a year ago that was dominated by non‑cash impairments. For the first nine months, revenue reached $64.6 million (up 5%) and net income was $8.8 million. Cash and cash equivalents were $35.3 million, and operating cash flow was $19.4 million for the nine‑month period.
R&D investment increased to 16% of quarterly revenue, reflecting work on a cloud‑enabled, AI‑driven modeling ecosystem. After quarter‑end, the company agreed to be acquired by an Altaris affiliate for $18.50 per share in cash, implying equity value of about $375 million, subject to shareholder and regulatory approvals.
Positive
- Return to profitability and margin expansion: Q3 2026 revenue rose 7% year over year to $21.9 million, gross margin improved to 69% from 64%, and net income reached $3.6 million versus a large prior-year loss driven by impairments.
- Stronger services business and healthy cash generation: Services revenue grew 20% year over year in the quarter, services gross margin improved to 43%, and operating cash flow for the nine months reached $19.4 million with cash and cash equivalents of $35.3 million.
- Definitive cash buyout agreement: Post quarter-end, the company agreed to be acquired by an Altaris affiliate for $18.50 per share in cash, implying equity value of about $375 million and a transition to private ownership, subject to shareholder and regulatory approvals.
Negative
- Softer software growth and heavier R&D spend: Software revenue declined 2% year over year for the nine months, and total R&D (expensed plus capitalized) increased to 19% of revenue from 12%, pressuring near-term profitability while funding longer-term platform investments.
- Prior-year impairment highlights execution risk: The dramatic swing from a $64.0 million nine‑month loss in 2025 to an $8.8 million profit in 2026 was largely driven by the absence of $77.2 million of non-cash impairment charges recorded in the prior-year period.
Insights
Simulations Plus returned to profitability with higher margins and agreed to a cash buyout at $18.50 per share.
Simulations Plus grew quarterly revenue 7% to $21.9 million, with services up 20% while software was flat. Gross margin expanded to 69% from 64% as software amortization fell and services utilization improved, producing operating income of $4.5 million.
Year-to-date revenue rose 5% to $64.6 million and net income reached $8.8 million, a sharp turnaround from the prior-year loss driven by $77.2 million of impairments. Operating cash flow of $19.4 million and cash of $35.3 million highlight a debt-light balance sheet with shareholders’ equity of $139.0 million.
Management is leaning into innovation, lifting R&D to 15–16% of revenue to build an integrated, cloud-enabled, AI-based modeling ecosystem. A subsequent agreement for an Altaris affiliate to acquire the company at $18.50 per share, implying about $375 million in equity value, would take Simulations Plus private after customary approvals and closing conditions.
Key Figures
Quarterly revenue: $21.9M
Services revenue growth: $9.3M (+20% YoY)
Quarterly net income: $3.6M
+5 more
8 metrics
Quarterly revenue
$21.9M
Three months ended May 31, 2026
Services revenue growth
$9.3M (+20% YoY)
Three months ended May 31, 2026 services segment
Quarterly net income
$3.6M
Three months ended May 31, 2026 vs prior-year loss
Nine-month revenue
$64.6M
Nine months ended May 31, 2026
Nine-month net income
$8.8M
Nine months ended May 31, 2026
Cash and cash equivalents
$35.3M
Balance sheet as of May 31, 2026
Operating cash flow
$19.4M
Nine months ended May 31, 2026
Merger consideration
$18.50 per share (~$375M equity value)
Altaris affiliate cash merger agreement announced June 2026
Key Terms
remaining performance obligations, ASC 606, Foreign-Derived Intangible Income, One Big Beautiful Bill Act, +2 more
6 terms
remaining performance obligations financial
"As of May 31, 2026, remaining performance obligations were $15.5 million, of which 98% is expected to be recognized over the next twelve months"
Remaining performance obligations are the work a company still needs to complete for its customers, like finishing a service or delivering a product. It’s important because it shows how much future income the company has coming in from current agreements, giving a clearer picture of its ongoing business.
ASC 606 financial
"In accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 606, we determine revenue recognition through the following steps"
A U.S. accounting standard that sets consistent rules for when and how companies record revenue from contracts with customers, focusing on the transfer of promised goods or services. It matters to investors because it affects the timing and amount of reported sales and profit—like deciding whether a contractor can count payment when a job starts, progresses, or finishes—so it improves comparability and helps assess a company's true economic performance.
Foreign-Derived Intangible Income financial
"The fiscal year had a smaller benefit from Foreign-Derived Intangible Income ("FDII")."
One Big Beautiful Bill Act financial
"In the current fiscal year, the Company is accelerating deductions elected under the One Big Beautiful Bill Act ("OBBBA")."
A "one big beautiful bill act" is a single, large piece of legislation that bundles many policy changes and measures into one package instead of passing them separately. For investors, it matters because such omnibus bills can swiftly change tax rules, spending levels, industry regulations or subsidies all at once—like a single shopping cart that suddenly adds many items to a household budget—creating broad, rapid shifts in company costs, revenues and market expectations.
Segment Reporting financial
"In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures"
Segment reporting is the practice of breaking a company's financial results into the separate parts of its business—such as product lines, geographic areas, or divisions—so outsiders can see how each part is performing. For investors, it matters because it reveals which areas drive profit or loss, like inspecting individual rooms in a house to know which need repair or add value, helping assess growth prospects and risks more accurately.
Merger Agreement financial
"On June 15, 2026, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with SP Evolution HoldCo II, LLC"
A merger agreement is a binding contract that lays out the exact terms for two companies to combine, including the price, what each side will deliver, and the conditions that must be met before the deal is completed. Investors care because it sets the timetable, payouts and risks — like a blueprint or prenup that shows whether the deal is likely to close, how ownership will change, and what could cancel or alter the payout they expect.
FAQ
How did Simulations Plus (SLP) perform in the quarter ended May 31, 2026?
Simulations Plus posted quarterly revenue of $21.9 million, up 7% year over year, and net income of $3.6 million. Gross margin improved to 69% from 64%, reflecting lower software amortization and better services utilization, supporting stronger operating profitability.
What drove revenue growth and mix changes for Simulations Plus (SLP) in 2026?
Growth was led by services, where revenue rose 20% year over year in the quarter to $9.3 million. Software revenue was essentially flat in the quarter and down 2% for the nine months, mainly from weaker Clinical Operations solutions, partially offset by Discovery and Development growth.
What are the key profitability and cash flow trends for Simulations Plus (SLP)?
For the nine months, Simulations Plus generated $64.6 million in revenue and $8.8 million in net income, with gross margin of 65%. Operating cash flow reached $19.4 million, and cash and cash equivalents totaled $35.3 million, supporting a solid, debt-light balance sheet.
How is Simulations Plus (SLP) investing in research and development?
Research and development spending increased significantly, reaching 16% of quarterly revenue and 15% for the nine months. Total R&D cost, including capitalized software, rose to 19% of revenue, funding an integrated, cloud-enabled, AI-driven modeling ecosystem and broader software enhancements.
What are the terms of the proposed Altaris buyout of Simulations Plus (SLP)?
After quarter-end, Simulations Plus agreed to a merger with an Altaris affiliate, under which shareholders will receive $18.50 in cash per share. The deal implies equity value of about $375 million and will take the company private, subject to shareholder and regulatory approvals and customary conditions.
How diversified are Simulations Plus (SLP) revenues by geography and segment?
For the nine months, about 71% of revenue came from the Americas, 20% from EMEA, and 9% from Asia Pacific. Segment-wise, software contributed $36.1 million and services $28.5 million, with particularly strong growth in Development and Commercialization solutions.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended | |||||
| OR | |||||
| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______ to ______ | |||||
Commission file number: 001-32046
(Name of registrant as specified in its charter)
| (State or other jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices including zip code)
(661 ) 723-7723
(Registrant’s telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||||||
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):
| o | Large accelerated Filer | o | Accelerated Filer | ||||||||
| x | Smaller reporting company | ||||||||||
| Emerging Growth Company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of June 30, 2026, was 20,224,838 .
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Simulations Plus, Inc.
FORM 10-Q
For the Quarterly Period Ended May 31, 2026
Table of Contents
PART I. FINANCIAL INFORMATION | ||||||||
| Page | ||||||||
Item 1. | Condensed Consolidated Financial Statements | |||||||
Unaudited Condensed Consolidated Balance Sheets at May 31, 2026 and August 31, 2025 | 3 | |||||||
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended May 31, 2026 and May 31, 2025 | 4 | |||||||
Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the three and nine months ended May 31, 2026 and May 31, 2025 | 5 | |||||||
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended May 31, 2026 and May 31, 2025 | 7 | |||||||
Notes to Condensed Consolidated Financial Statements | 8 | |||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 | ||||||
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 37 | ||||||
Item 4. | Controls and Procedures | 37 | ||||||
PART II. OTHER INFORMATION | ||||||||
Item 1. | Legal Proceedings | 37 | ||||||
Item 1A. | Risk Factors | 38 | ||||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 38 | ||||||
Item 3. | Defaults upon Senior Securities | 39 | ||||||
Item 4. | Mine Safety Disclosures | 39 | ||||||
Item 5. | Other Information | 39 | ||||||
Item 6. | Exhibits | 39 | ||||||
Signatures | 40 | |||||||
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
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SIMULATIONS PLUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| (in thousands, except per common share and common share data) | May 31, 2026 | August 31, 2025 | ||||||||||||
| ASSETS | ||||||||||||||
| Current assets | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
Accounts receivable, net of allowance for credit losses of $ | ||||||||||||||
| Prepaid income taxes | ||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||
| Short-term investments | ||||||||||||||
| Total current assets | ||||||||||||||
| Long-term assets | ||||||||||||||
Capitalized computer software development costs, net of accumulated amortization of $ | ||||||||||||||
| Property and equipment, net | ||||||||||||||
| Operating lease right-of-use assets | ||||||||||||||
Intellectual property, net of accumulated amortization of $ | ||||||||||||||
Other intangible assets, net of accumulated amortization of $ | ||||||||||||||
| Goodwill | ||||||||||||||
| Deferred tax assets, net | ||||||||||||||
| Other assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||
| Current liabilities | ||||||||||||||
| Accounts payable | $ | $ | ||||||||||||
| Accrued compensation | ||||||||||||||
| Accrued expenses | ||||||||||||||
| Operating lease liability - current portion | ||||||||||||||
| Deferred revenue | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Long-term liabilities | ||||||||||||||
| Operating lease liability - net of current portion | ||||||||||||||
| Total liabilities | ||||||||||||||
| Commitments and contingencies | ||||||||||||||
| Shareholders' equity | ||||||||||||||
Preferred stock, $ | $ | $ | ||||||||||||
Common stock, $ | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
| Accumulated deficit | ( | ( | ||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
| Total shareholders' equity | ||||||||||||||
| Total liabilities and shareholders' equity | $ | |||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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SIMULATIONS PLUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (in thousands, except per common share and common share data) | May 31, 2026 | May 31, 2025 | May 31, 2026 | May 31, 2025 | ||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||
| Software | $ | $ | $ | $ | ||||||||||||||||||||||
| Services | ||||||||||||||||||||||||||
| Total revenues | ||||||||||||||||||||||||||
| Cost of revenues | ||||||||||||||||||||||||||
| Software | ||||||||||||||||||||||||||
| Services | ||||||||||||||||||||||||||
| Total cost of revenues | ||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||||
| Sales and marketing | ||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||
| Impairments | ||||||||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||||||||
| Income (loss) from operations | ( | ( | ||||||||||||||||||||||||
| Other income, net | ||||||||||||||||||||||||||
| Income (loss) before income taxes | ( | ( | ||||||||||||||||||||||||
| Income tax (expense) benefit | ( | ( | ||||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Earnings per share | ||||||||||||||||||||||||||
| Basic | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Diluted | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Weighted-average common shares outstanding | ||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||
| Diluted | ||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ||||||||||||||||||||||||||
| Foreign currency translation adjustments | ( | |||||||||||||||||||||||||
| Unrealized (losses) gains on available-for-sale securities | ( | ( | ||||||||||||||||||||||||
| Comprehensive income (loss) | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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SIMULATIONS PLUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
| (in thousands, except common share data) | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||
| Balance as of September 1, 2025 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Shares issued to Directors for services | — | — | — | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Balance as of November 30, 2025 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Shares issued to Directors for services | — | — | — | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Balance as of February 28, 2026 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Shares issued to Directors for services | — | — | — | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Balance as of May 31, 2026 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
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| (in thousands, except common share data) | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||
| Balance as of September 1, 2024 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Shares issued to Directors for services | — | — | — | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Balance as of November 30, 2024 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Shares issued to Directors for services | — | — | — | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Balance as of February 28, 2025 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | . | — | — | ||||||||||||||||||||||||||||||||||
| Shares issued to Directors for services | — | — | — | |||||||||||||||||||||||||||||||||||
| Net (loss) | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Balance as of May 31, 2025 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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SIMULATIONS PLUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended | ||||||||||||||
| (in thousands) | May 31, 2026 | May 31, 2025 | ||||||||||||
| Cash flows from operating activities | ||||||||||||||
| Net income (loss) | $ | $ | ( | |||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Change in fair value of contingent consideration | ( | |||||||||||||
| Discharge of holdback obligation related to Immunetrics acquisition | ( | |||||||||||||
| Amortization of investment premiums | ( | |||||||||||||
| Stock-based compensation | ||||||||||||||
| Deferred income taxes | ( | |||||||||||||
| Loss from disposal of assets | ||||||||||||||
| Impairments | ||||||||||||||
| Currency translation adjustments | ( | |||||||||||||
| (Increase) decrease in | ||||||||||||||
| Accounts receivable | ( | ( | ||||||||||||
| Prepaid income taxes | ||||||||||||||
| Prepaid expenses and other current assets | ( | |||||||||||||
| Increase (decrease) in | ||||||||||||||
| Accounts payable | ||||||||||||||
| Other liabilities | ( | |||||||||||||
| Deferred revenue | ||||||||||||||
| Net cash provided by operating activities | ||||||||||||||
| Cash flows from investing activities | ||||||||||||||
| Purchases of property and equipment | ( | ( | ||||||||||||
| Vendor refund related to property and equipment | ||||||||||||||
| Purchase of short-term investments | ( | ( | ||||||||||||
| Proceeds from maturities of short-term investments | ||||||||||||||
| Proceeds from sales of investments | ||||||||||||||
| Purchased intangibles | ( | ( | ||||||||||||
| Net working capital & excess cash settlement - Pro-ficiency acquisition | ( | |||||||||||||
| Capitalized computer software development costs | ( | ( | ||||||||||||
| Net cash (used in) provided by investing activities | ( | |||||||||||||
| Cash flows from financing activities | ||||||||||||||
| Payments on contracts payable | ( | |||||||||||||
| Proceeds from the exercise of stock options | ||||||||||||||
| Net cash provided by (used in) financing activities | ( | |||||||||||||
| Net increase in cash and cash equivalents | ||||||||||||||
| Cash and cash equivalents, beginning of period | $ | $ | ||||||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||||||||
| Supplemental disclosures of cash flow information | ||||||||||||||
| Income taxes paid | $ | $ | ||||||||||||
| Supplemental disclosures of non-cash activities | ||||||||||||||
| Measurement period adjustments | $ | $ | ||||||||||||
| Non-cash investing and financing activities | ||||||||||||||
| Right of use assets capitalized | $ | $ | ||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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Simulations Plus, Inc.
Notes to Condensed Consolidated Financial Statements
For the three and nine months ended May 31, 2026, and May 31, 2025
NOTE 1 – DESCRIPTION OF BUSINESS
Simulations Plus, Inc. (the "Company", "we", "our") was incorporated in California on July 17, 1996. The Company is a global leader and premier provider in the biopharma sector, offering advanced software and consulting services that enhance drug discovery and development, clinical trial operations, and commercialization. The Company supports its clients across the drug development lifecycle from the early discovery through all phases of clinical research and development (“R&D”), including clinical operations, to product commercialization. The Company serves clients as a strategic partner throughout the entire drug development lifecycle, offering solutions that integrate scientific software platforms, artificial intelligence-augmented insights, and expert consulting. We believe this helps to optimize efficiency, costs, and time-to-market for our clients and enhances our competitive position.
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NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Basis of Presentation and Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates include, among other estimates, assumptions used in the allocation of the transaction price to separate performance obligations, estimates towards the measure of progress of completion on fixed-price service contracts, the determination of fair values and useful lives of both long-lived assets and intangible assets, goodwill, allowance for credit losses for accounts receivable, recoverability of deferred tax assets, recognition of deferred revenue, determination of fair value of equity-based awards, and assumptions used in testing for impairment of long-lived assets. Actual results could differ from those estimates, and such differences may be material to the consolidated financial statements.
The unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). These rules and regulations permit some of the information and footnote disclosures normally included in annual financial statements, prepared in accordance with U.S. GAAP, to be condensed or omitted. In management’s opinion, the unaudited consolidated financial statements contain all adjustments that are of a normal recurring nature, necessary for a fair presentation of the results of operations and financial position of the Company for the interim periods presented. Operating results for the interim period ended May 31, 2026, and May 31, 2025 are not necessarily indicative of the results that may be expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended August 31, 2025, and the notes thereto included in the Company’s Annual Report on Form 10-K.
Revenue Recognition
We generate revenue primarily from the sale of software licenses and by providing consulting services to the pharmaceutical industry in support of our clients' drug development and commercialization.
In accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 606, we determine 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, we satisfy a performance obligation
Components of Revenue
The following is a description of principal activities from which the Company generates revenue. As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract. Standalone selling prices are determined based on the prices at which the Company separately sells its services or goods.
Software Revenues:
Software revenues are primarily derived from the sale of software licenses, which are recognized at the time the software is unlocked and the license term begins. Most licenses are for a duration of one year or less.
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In addition to the software license, we provide a minimal level of customer support to assist customers with software usage. If customers require more extensive support, they may enter into a separate agreement for additional training services and maintenance.
The majority of the software is installed on customers’ servers, and the Company does not maintain control over the software post-sale, except through licensing parameters that govern the number of users, accessible modules, and license expiration dates.
The Pro-ficiency platform includes software customization by incorporating content tailored to specific needs. Following customization, it generates a recurring revenue stream throughout the duration of a clinical trial. Revenue is recognized over time.
Payments are generally due upon invoicing on a net-30 basis, unless alternative payment terms are negotiated with the customer based on their payment history. Standard industry practices apply.
For certain software arrangements, the Company hosts the licenses on servers maintained by the Company. Revenue for those arrangements is accounted for as Software as a Service over the life of the contract. These arrangements account for less than 10% of software revenues of the Company.
Services Revenue:
Consulting services provided to our customers are generally recognized over time as the contracts are performed and the services are rendered. The Company measures its consulting revenue based on time expended compared to total estimated hours to complete a project. The Company believes the method chosen for its contract revenue best depicts the transfer of benefits to the customer under the contracts. Payments are generally due upon invoicing on a net-30 basis, unless other payment terms are negotiated with the customer based on customer history. Typical industry standards apply.
Grant revenue:
The Company receives government awards in the form of cash grants that vary in size, duration, and conditions from domestic governmental agencies. Accounting for grant revenue does not fall under ASC 606, Revenue from Contracts with Customers. For government awards in which no specific US GAAP applies, the Company accounts for such transactions as revenue and by analogy to a grant model. The grant revenue is recognized on a gross basis. The grant revenue is recognized over the duration of the program when the conditions attached to the grant are achieved. If conditions are not satisfied, the grants are often subject to reduction, repayment, or termination. The Company classifies the impact of government assistance on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income as services revenue.
The Company received assistance from domestic governmental agencies to provide reimbursement for various costs incurred for research and development. These include direct grant awards and subawards. The grants awarded are currently set to expire at various dates through 2026. The Company recognized $0.1 million and $0.2 million for the three and nine months ended May 31, 2026, and $0.1 million and $0.5 million for the three and nine months ended May 31, 2025, respectively, within on the Condensed Consolidated Statements of Operations and Comprehensive Income related to such assistance. Amounts that have been earned but not yet funded are included in accounts receivable. Computer equipment allowable by the grants is classified under fixed assets. Subawards due to unrelated entities are classified under accrued expenses.
Remaining Performance Obligations
As of May 31, 2026, remaining performance obligations were $15.5 million, of which 98 % is expected to be recognized over the next twelve months , with the remainder expected to be recognized thereafter.
Disaggregation of Revenues
The components of revenue for the three and nine months ended May 31, 2026, and May 31, 2025, respectively, were as follows:
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| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (in thousands) | May 31, 2026 | May 31, 2025 | May 31, 2026 | May 31, 2025 | ||||||||||||||||||||||
| Software licenses | ||||||||||||||||||||||||||
| Point in time | $ | $ | $ | $ | ||||||||||||||||||||||
| Over time | ||||||||||||||||||||||||||
| Services | ||||||||||||||||||||||||||
| Over time | ||||||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||||||||||||
Contract Balances
Contract assets excluding accounts receivable balances as of May 31, 2026, and August 31, 2025, were $4.7 million and $4.9 million, respectively. This balance is included in Prepaid Expenses and Other Current Assets on the Condensed Consolidated Balance Sheets.
During the three and nine months ended May 31, 2026, the Company recognized $0.4 million and $2.4 million of revenue, respectively, that was included in contract liabilities as of August 31, 2025. During the three and nine months ended May 31, 2025, the Company recognized $0.1 million and $2.0 million of revenue, respectively, that was included in contract liabilities as of August 31, 2024.
Deferred Commissions
Sales commissions earned by our sales force and our commissioned sales representatives are considered incremental and recoverable costs of obtaining a contract with a customer. We apply the practical expedient as described in ASC 340-40-25-4 to expense costs as incurred for sales commissions, since the amortization period of the asset that we otherwise would have recognized is one year or less. This expense is included in the condensed consolidated statements of operations and comprehensive income as sales and marketing expense.
Cash and Cash Equivalents
Accounts Receivable and Allowance for Credit Losses
The Company extends credit to its customers in the normal course of business. The Company evaluates its allowance for credit losses based on its estimate of the collectability of its trade accounts receivable. As part of this assessment, the Company considers various factors, including the financial condition of the individual companies with which it does business, the aging of receivable balances, historical experience, changes in customer payment terms, current market conditions, and reasonable and supportable forecasts of future economic conditions. In times of economic turmoil, the Company’s estimates and judgments with respect to the collectability of its receivables are subject to greater uncertainty than in more stable periods. Accounts receivable balances will be charged off against the allowance for credit losses after all means of collection have been exhausted and the potential for recovery is considered remote.
The activity in the allowance for credit losses related to our accounts receivable is summarized as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (in thousands) | May 31, 2026 | May 31, 2025 | May 31, 2026 | May 31, 2025 | ||||||||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||||||||||||
| Provision for credit losses | ( | ( | ||||||||||||||||||||||||
| Write-offs | ( | ( | ( | ( | ||||||||||||||||||||||
| Balance, end of period | $ | $ | $ | $ | ||||||||||||||||||||||
Investments
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The Company may invest excess cash balances in short-term and long-term marketable debt securities. Investments may consist of certificates of deposit, money market accounts, government-sponsored enterprise securities, corporate bonds, and/or commercial paper within the parameters of our investment policy and guidelines. The Company accounts for its investments in marketable debt securities in accordance with ASC 320, Investments – Debt and Equity Securities. This statement requires debt securities to be classified into three categories:
Held-to-maturity—Debt securities that the entity has the positive intent and ability to hold to maturity are measured at amortized cost and are presented at the net amount expected to be collected. Any change in the allowance for credit losses during the period is reflected in earnings. Discounts and premiums to par value of the debt securities are amortized to interest income/expense over the term of the security.
Trading Securities—Debt securities that are bought and held primarily for the purpose of selling in the near term are reported at fair value, with unrealized gains and losses included in earnings.
Available-for-Sale (“AFS”)—Debt securities not classified as either securities held-to-maturity or trading securities are reported at fair value. For AFS debt securities in an unrealized-loss position, we evaluate as of the balance sheet date whether the unrealized losses are attributable to a credit loss or other factors. The portion of unrealized losses related to a credit loss is recognized in earnings, and the portion of unrealized loss not related to a credit loss is recognized in other comprehensive income (loss). For AFS debt securities, the unrealized gains and losses are included in other comprehensive income until realized, at which time they are reported through net income.
We classify our investments in marketable debt securities based on the facts and circumstances present at the time of purchase of the securities. We reassess the appropriateness of that classification at each reporting date. During the three and nine months ended May 31, 2026, all of our investments were classified as AFS or were term deposits. For the year ended August 31, 2025, we had no AFS investments.
Research & Development ("R&D") Capitalized Software Development Costs
R&D activities include both the enhancement of existing products and the development of new products. Development of new products and adding functionality to existing products are capitalized in accordance with FASB ASC 985-20, “Costs of Software to Be Sold, Leased, or Marketed.” R&D expenditures, which primarily relate to both capitalized and expensed salaries, R&D supplies, and R&D consulting, were $4.1 million and $12.3 million during the three and nine months ended May 31, 2026, of which $0.7 million and $2.4 million, respectively, were capitalized. R&D expenditures during the three and nine months ended May 31, 2025, were $2.1 million and $7.6 million, respectively, of which $0.9 million and $2.4 million, respectively, were capitalized.
Software development costs are capitalized in accordance with ASC 985-20. 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 software development costs require considerable judgment by management with respect to certain external factors, including, but not limited to, technological feasibility, anticipated future gross revenue, 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 our software products.
Amortization of capitalized 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 $0.8 million and $2.5 million, respectively, for the three and nine months ended May 31, 2026, and $0.8 million and $2.4 million, respectively, for the three and nine months ended May 31, 2025, respectively. We expect future amortization expense to vary due to increases in capitalized computer software development costs.
The Company assesses capitalized computer software development costs for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Property and Equipment
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Property and equipment are recorded at cost, or fair market value for property and equipment acquired in business combinations, less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives as follows:
| Equipment | |||||
| Computer equipment | |||||
| Furniture and fixtures | |||||
| Leasehold improvements | Shorter of the asset life or lease term | ||||
Maintenance and minor replacements are charged to expense as incurred. Gains and losses on disposals are included in the results of operations.
Depreciation expense for the three and nine months ended May 31, 2026, was less than $0.1 million and $0.2 million, respectively. Depreciation expense for the three and nine months ended May 31, 2025, was $0.1 million and $0.3 million, respectively.
Internal Use Software
We have capitalized certain internal use software costs in accordance with ASC 350-40, which are included in intangible assets. The amortization of such costs is classified as general and administrative expenses on the condensed consolidated statements of operations. Maintenance of and minor upgrades to internal use software are also classified as general and administrative expenses as incurred.
Intangible Assets, Goodwill and Impairments
We perform valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination and recognize the assets acquired and liabilities assumed at their acquisition-date fair value. Acquired intangible assets include customer relationships, software, trade names, and noncompete agreements. We determine the appropriate useful life of intangible assets by performing an analysis of expected cash flows based on historical experience of the acquired businesses. Finite-lived 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. Finite-lived 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.
Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets. Goodwill and indefinite-lived intangible assets are tested for impairment on the last day of the fiscal year or when events or circumstances change that would indicate that they 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 our use of the acquired assets or the strategy for our 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.
Below is a reconciliation of the changes in Goodwill carrying value per reportable segment for the nine months ended May 31, 2026:
| (in thousands) | Software | Services | Total | |||||||||||||||||
| Balance, August 31, 2025 | $ | $ | $ | |||||||||||||||||
| Addition | ||||||||||||||||||||
| Impairments | ||||||||||||||||||||
| Balance, May 31, 2026 | $ | $ | $ | |||||||||||||||||
The following table summarizes other intangible assets as of May 31, 2026:
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| (in thousands) | Amortization Period | Gross Carrying Value | Accumulated Amortization | Net Book Value | ||||||||||||||||||||||
| Trade names | Indefinite | $ | $ | $ | ||||||||||||||||||||||
| Covenants not to compete | Straight line | |||||||||||||||||||||||||
| Other internal use software | Straight line | |||||||||||||||||||||||||
| Customer relationships | Straight line | |||||||||||||||||||||||||
| ERP | Straight line | |||||||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||||||
The Company reviews indefinite-lived intangible assets, consisting of trade names in accordance with ASC 350 Intangibles - Goodwill and Other, for impairment annually or when an event occurs that may indicate potential impairment.
The Company accounts for the impairment and disposition of long-lived assets in accordance with ASC 360, Property, Plant, and Equipment. Long-lived assets to be held and used are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable. The Company measures recoverability by comparing the carrying amount of an asset to the expected future undiscounted net cash flows generated by the asset. If the Company determines that the asset may not be recoverable, or if the carrying amount of an asset exceeds its estimated future undiscounted cash flows, it recognizes an impairment charge to the extent of the difference between the fair value and the asset's carrying amount.
The following table summarizes other intangible assets as of August 31, 2025:
| (in thousands) | Amortization Period | Gross Carrying Value | Accumulated Amortization | Net Book Value | ||||||||||||||||||||||
| Trade names | Indefinite | $ | $ | $ | ||||||||||||||||||||||
| Covenants not to compete | Straight line | |||||||||||||||||||||||||
| Other internal use software | Straight line | |||||||||||||||||||||||||
| Customer relationships | Straight line | |||||||||||||||||||||||||
| ERP | Straight line | |||||||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||||||
Total amortization expense for the three and nine months ended May 31, 2026, was $0.3 million and $0.8 million, respectively. Total amortization expense for the three and nine months ended May 31, 2025, was $0.3 million and $1.0 million, respectively.
The weighted-average amortization period for covenants not to compete is zero, other internal use software is 10.5 years, customer relationships is 7.2 years, and ERP is 10.6 years.
Estimated future amortization of finite-lived intangible assets for the next five fiscal years are as follows:
| (in thousands) | ||||||||
Years Ending August 31, | Amount | |||||||
| Remainder of 2026 | $ | |||||||
| 2027 | $ | |||||||
| 2028 | $ | |||||||
| 2029 | $ | |||||||
| 2030 | $ | |||||||
Fair Value of Financial Instruments
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Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The categories are as follows:
| Level Input: | Input Definition: | |||||||
| Level I | Inputs that are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date. | |||||||
| Level II | Inputs, other than quoted prices included in Level I, that are observable for the asset or liability through corroboration with market data at the measurement date. | |||||||
| Level III | Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. | |||||||
For certain of the Company's financial instruments, including accounts receivable, accounts payable, and accrued compensation and other accrued expenses, the carrying amounts are representative of their fair values due to their short maturities.
The Company may also invest excess cash in certificates of deposit, money market accounts, government-sponsored enterprise securities, and/or commercial paper. In addition, under the fair-value hierarchy, the fair market values of the Company’s cash equivalents and investments are Level I. As of May 31, 2026, all investments were classified as short-term investments and cash equivalents.
The following tables summarize our short-term investments and cash equivalents as of May 31, 2026, and August 31, 2025:
| May 31, 2026 | ||||||||||||||||||||||||||
| (in thousands) | Amortized cost | Unrealized gains | Unrealized losses | Fair value | ||||||||||||||||||||||
| Level 1: | ||||||||||||||||||||||||||
| Money Market | $ | $ | $ | $ | ||||||||||||||||||||||
| Term deposits (due within one year) | ||||||||||||||||||||||||||
| Corporate debt securities (due within one year) | ( | |||||||||||||||||||||||||
| Total Level 1 | ( | |||||||||||||||||||||||||
| Level 2: | ||||||||||||||||||||||||||
| Level 3: | ||||||||||||||||||||||||||
| Total securities | $ | $ | $ | ( | $ | |||||||||||||||||||||
| August 31, 2025 | ||||||||||||||||||||||||||
| (in thousands) | Amortized cost | Unrealized gains | Unrealized losses | Fair value | ||||||||||||||||||||||
| Level 1: | ||||||||||||||||||||||||||
| Term deposits (due within one year) | $ | $ | $ | $ | ||||||||||||||||||||||
| Money Market | ||||||||||||||||||||||||||
| Total Level 1 | ||||||||||||||||||||||||||
| Level 2: | ||||||||||||||||||||||||||
| Level 3: | ||||||||||||||||||||||||||
| Total securities | $ | $ | $ | $ | ||||||||||||||||||||||
Accrued interest on short-term investments was $0.1 million as of May 31, 2026 and less than $0.1 million as of August 31, 2025. These balances are included within Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets.
Business Combination
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The acquisition method of accounting for business combinations requires us to use significant estimates and assumptions, including fair-value estimates, as of the business combination date and to refine those estimates as necessary during the measurement period (defined as the period, not to exceed one year, in which we may adjust the provisional amounts recognized for a business combination).
Under the acquisition method of accounting, we recognize separately from goodwill the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquiree, generally at the acquisition-date fair value. We measure goodwill as of the acquisition date as the excess of consideration transferred, which we also measure at fair value, over the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed. Costs that we incur to complete the business combination, such as investment banking, legal, and other professional fees, are not considered part of the consideration, and we recognize such costs as general and administrative expenses as they are incurred. We also account for acquired-company restructuring activities that we initiate separately from the business combination.
Should the initial accounting for a business combination be incomplete by the end of a reporting period that falls within the measurement period, we report provisional amounts in our condensed consolidated financial statements. During the measurement period, we adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date, and we record those adjustments to our financial statements. We apply those measurement-period adjustments that we determine to be material retrospectively to comparative information in our financial statements, including adjustments to depreciation and amortization expense.
Under the acquisition method of accounting for business combinations, if we identify changes to acquired deferred-tax asset valuation allowances or liabilities related to uncertain tax positions during the measurement period, and they relate to new information obtained about facts and circumstances that existed as of the acquisition date, those changes are considered a measurement-period adjustment and we record the offset to goodwill. We record all other changes to deferred-tax asset valuation allowances and liabilities related to uncertain tax positions in current-period income tax expense. This accounting applies to all our acquisitions regardless of acquisition date.
During the three months ended May 31, 2026, and May 31, 2025, the Company recognized a mergers and acquisitions expense of $0.5 million and zero , respectively. During the nine months ended May 31, 2026, and May 31, 2025, the Company recognized a mergers and acquisitions expense of $0.5 million and $0.1 million, respectively. The Company records mergers and acquisition expenses in general and administrative expenses in the condensed consolidated statements of operations and comprehensive income.
Research and Development Costs
R&D costs are charged to expense as incurred until technological feasibility has been established. These costs include salaries and purchased software that was developed by other companies and incorporated into, or used in the development of, our final products.
Income Taxes
We account for income taxes in accordance with ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the condensed consolidated 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 basis 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.
Intellectual property
In June 2017, as part of the acquisition of DILIsym, the Company acquired certain developed technologies associated with drug-induced liver disease (“DILI”). These technologies were valued at $2.9 million and are being amortized over 9 years under the straight-line method.
In September 2018, we purchased certain intellectual property rights of Entelos Holding Company. The cost of $0.1 million is being amortized over 10 years under the straight-line method.
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In April 2020, as part of the acquisition of Lixoft, the Company acquired certain developed technologies associated with the Lixoft scientific software. These technologies were valued at $8.0 million and are being amortized over 16 years under the straight-line method.
In June 2023, we purchased certain developed technology of Immunetrics. The cost of $1.1 million is being amortized over 5
In June 2024, we purchased certain developed technology of Pro-ficiency. The cost of $16.6 million is being amortized over 5 years under the straight-line method. This was subsequently impaired in May, 2025 for the remaining net book value.
The following table summarizes intellectual property as of May 31, 2026:
| (in thousands) | Amortization Period | Gross Carrying Value | Accumulated Amortization | Net Book Value | ||||||||||||||||||||||
| Developed technologies–DILIsym acquisition | Straight line | $ | $ | $ | ||||||||||||||||||||||
| Intellectual rights of Entelos Holding Company | Straight line | |||||||||||||||||||||||||
| Developed technologies–Lixoft acquisition | Straight line | |||||||||||||||||||||||||
| Developed technologies–Immunetrics acquisition | Straight line | |||||||||||||||||||||||||
| Developed technologies–Pro-ficiency acquisition | Straight line | |||||||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||||||
The following table summarizes intellectual property as of August 31, 2025:
| (in thousands) | Amortization Period | Gross Carrying Value | Accumulated Amortization | Net Book Value | ||||||||||||||||||||||
| Developed technologies–DILIsym acquisition | Straight line | $ | $ | $ | ||||||||||||||||||||||
| Intellectual rights of Entelos Holding Company | Straight line | |||||||||||||||||||||||||
| Developed technologies–Lixoft acquisition | Straight line | |||||||||||||||||||||||||
| Developed technologies–Immunetrics acquisition | Straight line | |||||||||||||||||||||||||
| Developed technologies–Pro-ficiency acquisition | Straight line | |||||||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||||||
Total amortization expense for intellectual property agreements was $0.3 million and $1.1 million for the three months ended May 31, 2026, and 2025, respectively, and $0.8 million and $3.3 million for the nine months ended May 31, 2026, and 2025, respectively. The Company records these in Cost of revenues - software on the Condensed Consolidated Statements of Operations and Comprehensive Income.
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Estimated future amortization of intellectual property for the next five fiscal years is as follows:
| (in thousands) | ||||||||
Years Ending August 31, | Amount | |||||||
| Remainder of 2026 | $ | |||||||
| 2027 | $ | |||||||
| 2028 | $ | |||||||
| 2029 | $ | |||||||
| 2030 | $ | |||||||
Earnings per Share
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (in thousands) | May 31, 2026 | May 31, 2025 | May 31, 2026 | May 31, 2025 | ||||||||||||||||||||||
| Numerator | ||||||||||||||||||||||||||
| Net income attributable to common shareholders | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Denominator | ||||||||||||||||||||||||||
| Weighted-average number of common shares outstanding during the period | ||||||||||||||||||||||||||
| Dilutive effect of stock options | ||||||||||||||||||||||||||
| Common stock and common-stock equivalents used for diluted earnings per share | ||||||||||||||||||||||||||
Stock-Based Compensation
For the three months ended May 31, 2026, and 2025, 4,044 and 1,984,935 shares, respectively, were excluded from the computation of diluted earnings per share because their inclusion would have been anti-dilutive. For the nine months ended May 31, 2026, and 2025, 780 and 1,984,935 respectively, were not similarly excluded.
Recently Issued Accounting Standards
In October 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-06 - Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative (“ASU 2023-06”). ASU 2023-06 incorporates 14 of the 27 disclosure requirements published in SEC Release No. 33-10532 - Disclosure Update and Simplification into various topics within the ASC. ASU 2023-06's amendments represent clarifications to, or technical corrections of, current requirements. For SEC registrants, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. Early adoption is prohibited. The Company does not expect ASU 2023-06 to have a material effect on its consolidated financial statements, as the updates are incremental to existing disclosures.
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In December 2023, the FASB issued a new standard (ASU 2023-09) to improve income tax disclosures. The guidance requires disclosure of disaggregated income taxes paid, prescribes standardized categories for the components of the effective tax rate reconciliation, and modifies other income-tax-related disclosures. The amendments will be effective for annual periods beginning after December 15, 2024. The amendments should be applied on a prospective basis. Retrospective application is permitted. The Company will adopt this standard prospectively beginning with its annual period ended August 31, 2026, and interim periods thereafter. The Company does not expect ASU 2023-09 to have a material effect on its consolidated financial statements as the additional incremental disclosures information is available to the Company.
In July 2025, the FASB issued ASU 2025-05, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. The ASU provides a practical expedient related to the estimation of expected credit losses for current accounts receivable and current contract assets that arise from transactions accounted for under ASC 606. In developing reasonable and supportable forecasts as part of estimating expected credit losses, all entities may elect a practical expedient that assumes that current conditions as of the balance sheet date do not change for the remaining life of the asset. The ASU also provides non-public entities with an accounting policy election. The ASU will be effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company does not anticipate this having a material impact to our consolidated financial statements or disclosure.
In September 2025, the FASB issued ASU 2025-06, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40)” which eliminates all references to project stages and requires capitalization of software costs when: (i) management authorizes and commits to funding the software project, and (ii) it is probable the software project will be completed and used as intended, known as the “probable-to-completion recognition threshold.” Entities must consider whether there is significant uncertainty associated with the development activities of the software in determining if the threshold is met. In addition, the amendments in the update specify that property, plant and equipment disclosure requirements are required for capitalized internal-use software costs, regardless of financial statement presentation, and also incorporate the recognition requirements for website-specific development costs. This ASU will be effective for the Company for our fiscal year 2029 annual reporting period with the guidance applied either prospectively, retrospectively, or via a modified prospective transition method. Early adoption is permitted. We are currently evaluating the impact that the adoption of this ASU will have on our interim and consolidated financial statements.
In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832), to provide guidance on how business entities recognize, measure, and present government grants received. The effective date for this standard is for fiscal years beginning after December 15, 2028, and interim periods within those fiscal years. Early adoption is permitted. The amendments in this ASU may be applied using a modified prospective, modified retrospective, or retrospective approach. We are currently evaluating the impact that the adoption of this ASU will have on our interim and consolidated financial statements.
In December 2025, the FASB issued ASU 2025-11 to amend the guidance in “Interim Reporting” (Topic 270). The update provides clarifications intended to improve the consistency and usability of interim disclosure requirements, including a comprehensive listing of required interim disclosures and a new disclosure principle for reporting material events occurring after the most recent annual period. The amendments do not change the underlying objectives of interim reporting but are designed to enhance clarity in application. The guidance is effective for fiscal years beginning after December 15, 2027, including interim periods within those fiscal years. The Company will adopt this guidance in fiscal 2029 and has not yet determined the impact on its consolidated financial statements.
Recently Adopted Accounting Standards
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires companies to enhance the disclosures about segment expenses. The new standard requires the disclosure of the Company’s Chief Operating Decision Maker (CODM), expanded incremental line-item disclosures of significant segment expenses used by the CODM for decision-making, and the inclusion of previous annual-only segment disclosure requirements on a quarterly basis. This ASU should be applied retrospectively for fiscal years beginning after December 15, 2023, and early adoption is permitted. The Company adopted this guidance for annual disclosures for the year ended August 31, 2025, and interim periods thereafter. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
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NOTE 3 – OTHER INCOME
The components of other income for the three and nine months ended May 31, 2026, and May 31, 2025, were as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (in thousands) | May 31, 2026 | May 31, 2025 | May 31, 2026 | May 31, 2025 | ||||||||||||||||||||||
| Interest income | $ | $ | $ | $ | ||||||||||||||||||||||
| Change in fair valuation of contingent consideration | ||||||||||||||||||||||||||
| Gain (loss) on disposal of assets | ( | ( | ||||||||||||||||||||||||
| Gain (loss) on currency exchange | ( | ( | ||||||||||||||||||||||||
| Total other income | $ | $ | $ | $ | ||||||||||||||||||||||
NOTE 4 – COMMITMENTS AND CONTINGENCIES
Income Taxes
We follow guidance issued by the FASB regarding our accounting for uncertainty in income taxes recognized in the financial statements. Such guidance prescribes a recognition threshold of more-likely-than-not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position, and must assume that the tax position will be examined by taxing authorities. Our policy is to include interest and penalties related to income tax expense. We file income tax returns with the IRS and various state jurisdictions as well as with the countries of France and India. Our federal income tax returns for fiscal years 2022 through 2025 are open for audit, and our state tax returns for fiscal years 2019 through 2024 remain open for audit.
Our review of prior-year tax positions using the criteria and provisions presented in guidance issued by FASB did not result in a material impact on our financial position or results of operations.
We recorded an income tax expense of $1.2 million related to income before taxes of $4.8 million for the three months ended May 31, 2026, and an income tax expense of $2.9 million related to income before taxes of $11.7 million for the nine months ended May 31, 2026. We recorded an income tax benefit of $6.7 million related to loss before taxes of $74.0 million for the three months ended May 31, 2025, and an income tax benefit of $6.2 million related to loss before taxes of $70.3 million for the nine months ended May 31, 2025. The income tax rate for the three and nine months ended May 31, 2026, was 26 % and 25 %, respectively. The income tax rate for the three and nine months ended May 31, 2025, was 9 % and 9 %, respectively. The increase in the tax rate is primarily due to the result of a favorable discrete item in the prior year that did not recur in the current year, a less favorable jurisdictional mix of earnings between the U.S. and France, a higher effective tax rate in France, and a lower Foreign-Derived Intangible Income ("FDII") benefit. The Company incurred costs with respect to the Merger Agreement. These costs are deductible for GAAP purposes. Generally, many of the costs incurred must be capitalized and are not deductible for tax purposes. In the current fiscal year, the Company is accelerating deductions elected under the One Big Beautiful Bill Act ("OBBBA"). These deductions are expected to be favorable to cash flows as they accelerate the timing of tax benefits and reduce near-term cash tax payment.
Litigation
We are not a party to any material legal proceedings and are not aware of any pending or threatened legal proceedings of any kind.
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NOTE 5 – SHAREHOLDERS' EQUITY
Shares Outstanding
Shares of the Company's common stock outstanding for the three and nine months ended May 31, 2026, and May 31, 2025, were as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (in thousands) | May 31, 2026 | May 31, 2025 | May 31, 2026 | May 31, 2025 | ||||||||||||||||||||||
| Common stock outstanding, beginning of period | ||||||||||||||||||||||||||
| Common stock issued during the period | ||||||||||||||||||||||||||
| Common stock outstanding, end of period | ||||||||||||||||||||||||||
NOTE 6 – STOCK OWNERSHIP PLANS
The following table summarizes information about stock options:
| (in thousands, except per share and weighted-average amounts) | ||||||||||||||||||||
| Activity for the nine months ended May 31, 2026 | Number of Options | Weighted-Average Exercise Price Per Share | Weighted-Average Remaining Contractual Life | |||||||||||||||||
| Outstanding, August 31, 2025 | $ | |||||||||||||||||||
| Granted | ||||||||||||||||||||
| Exercised | ( | |||||||||||||||||||
| Canceled/Forfeited | ( | |||||||||||||||||||
| Outstanding, May 31, 2026 | $ | |||||||||||||||||||
| Vested and Exercisable, May 31, 2026 | $ | |||||||||||||||||||
| Vested and Expected to Vest, May 31, 2026 | $ | |||||||||||||||||||
The total grant-date fair value of nonvested stock options as of May 31, 2026, was $17.7 million and is amortizable over a weighted-average period of 2.9 years.
The fair value of these options was estimated at the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-valuation model was developed for use in estimating the fair value of stock options, which do not have vesting restrictions and are fully transferable. In addition, option-valuation models require the input of highly subjective assumptions, including the expected stock price volatility.
The following table summarizes the fair value of the options, including both ISOs and NQSOs, granted during the nine months ended May 31, 2026, and for the fiscal year ended August 31, 2025:
| (in thousands, except weighted-average amounts) | Nine Months Ended May 31, 2026 | Fiscal Year 2025 | ||||||||||||
| Estimated fair value of awards granted | $ | $ | ||||||||||||
| Unvested forfeiture rate | % | % | ||||||||||||
| Weighted-average grant price | $ | $ | ||||||||||||
| Weighted-average market price | $ | $ | ||||||||||||
| Weighted-average volatility | % | % | ||||||||||||
| Weighted-average risk-free rate | % | % | ||||||||||||
| Weighted-average dividend yield | % | % | ||||||||||||
| Weighted-average expected life | ||||||||||||||
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The exercise prices for the options outstanding at May 31, 2026, ranged from $18.77 to $66.14 per share, and the information relating to these options is as follows:
(in thousands except prices and weighted-average amounts)
| Exercise Price Per Share | Awards Outstanding | Awards Exercisable | ||||||||||||||||||||||||||||||||||||||||||
| Low | High | Quantity | Weighted -Average Remaining Contractual Life | Weighted-Average Exercise Price | Quantity | Weighted-Average Remaining Contractual Life | Weighted-Average Exercise Price | |||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||||||||||||||||||||
NOTE 7 – CONCENTRATIONS AND UNCERTAINTIES
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents, trade accounts receivable, and short-term investments. The Company holds cash and cash equivalents with balances that exceed FDIC-insured limits. Cash maintained in excess of these limits is on deposit with a large, national bank. Accordingly, the Company does not have depository exposure to regional banks. In addition, the Company holds cash at a bank in France that is not FDIC-insured. Historically, the Company has not experienced any losses in such accounts, and management believes that the financial institutions at which its cash is held are stable; however, no assurances can be provided.
Revenue concentration shows that international sales accounted for 29 % and 27 % of revenue for the nine months ended May 31, 2026, and May 31, 2025, respectively. Our three largest customers in terms of revenue accounted for 7 %, 4 %, and 4 % of total revenues, respectively, for the nine months ended May 31, 2026. Our three largest customers in terms of revenue accounted for 7 %, 4 %, and 3 % of total revenues, respectively, for the nine months ended May 31, 2025.
Accounts receivable concentrations show that our three largest customers in terms of accounts receivable each comprised between 4 % and 12 % of accounts receivable as of May 31, 2026; our three largest customers in terms of accounts receivable comprised between 5 % and 12 % of accounts receivable as of May 31, 2025. As of the filing date of this report, a substantial majority of the outstanding receivable balance from our largest customer, which represented 12 % of accounts receivable as of May 31, 2026, was current on all outstanding invoices, except for a de minimis amount.
We operate in biosimulation, simulation-enabled performance and intelligence solutions, and medical communications to the biopharma industry, which is highly competitive and changes rapidly. Our operating results could be significantly affected by our ability to develop new products and find new distribution channels for new and existing products.
NOTE 8 – SEGMENT REPORTING
The Company applies ASC 280, Segment Reporting, in determining reportable segments. We define our reportable segments based on the way the chief operating decision maker (“CODM”), which is our Chief Executive Officer, manages the operations for purposes of allocating resources and assessing segment performance. Our reportable segments include the following:
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•Software: Supports pharmaceutical research, development, and commercialization through simulation, modeling, and AI-driven prediction. Its main products include GastroPlus®, ADMET Predictor®, MonolixSuite™, and others for disease modeling and training, as well as Pro-ficiency® for clinical operations. The company also advances partnerships with institutions like the FDA, NIEHS, PAS, and SACF to drive innovation in virtual drug testing, chemical safety, and AI-enabled discovery.
•Services: Advanced consulting services across the entire drug development lifecycle. Its scientists and engineers specialize in drug discovery, pharmacokinetics, pharmacodynamics, drug modeling, clinical trial data analysis, regulatory strategy, and medical communications.
The CODM reviews revenue and gross profit to evaluate current-period performance versus budget and prior periods at each reportable segment and assesses management performance for purposes of annual incentive compensation. Gross profit is defined as revenue less cost of revenue incurred by the segment.
There are no differences in measurement between the segment profit measure used by CODM and condensed consolidated income before income taxes. The following schedule reconciles the total of reportable segments’ gross profit and significant expenses to consolidated income before income taxes for the three and nine months ended May 31, 2026, and May 31, 2025, respectively.
| Three Months Ended May 31, 2026 | Three Months Ended May 31, 2025 | ||||||||||||||||||||||||||||||||||
| (in thousands) | Software | Services | Total | Software | Services | Total | |||||||||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Less: | |||||||||||||||||||||||||||||||||||
| Cost of revenue (1) | |||||||||||||||||||||||||||||||||||
| Gross Profit | |||||||||||||||||||||||||||||||||||
| Gross Margin | % | % | % | % | % | % | |||||||||||||||||||||||||||||
| Less: | |||||||||||||||||||||||||||||||||||
| Research and Development | |||||||||||||||||||||||||||||||||||
| Sales and Marketing | |||||||||||||||||||||||||||||||||||
| General and administrative (2) | |||||||||||||||||||||||||||||||||||
| Impairments | |||||||||||||||||||||||||||||||||||
| Income (loss) from operations | ( | ||||||||||||||||||||||||||||||||||
| Add: | |||||||||||||||||||||||||||||||||||
| Interest income and other, net | |||||||||||||||||||||||||||||||||||
| Gain (loss) on disposal of fixed assets | ( | ||||||||||||||||||||||||||||||||||
| (Loss) gain on currency exchange | ( | ||||||||||||||||||||||||||||||||||
| Income (loss) before income taxes | $ | $ | ( | ||||||||||||||||||||||||||||||||
(1) Cost of revenue for the three months ended May 31, 2026, and May 31, 2025, includes $1.1 million and $1.9 million, respectively of amortization within our Software reportable segment.
(2) General and administrative for the three months ended May 31, 2026, and May 31, 2025, includes less than $0.1 million and $0.1 million of depreciation and $0.3 million and $0.3 million of amortization, respectively.
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| Nine Months Ended May 31, 2026 | Nine Months Ended May 31, 2025 | |||||||||||||||||||||||||||||||||||||
| (in thousands) | Software | Services | Total | Software | Services | Total | ||||||||||||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Less: | ||||||||||||||||||||||||||||||||||||||
| Cost of revenue (1) | ||||||||||||||||||||||||||||||||||||||
| Gross Profit | ||||||||||||||||||||||||||||||||||||||
| Gross Margin | % | % | % | % | % | % | ||||||||||||||||||||||||||||||||
| Less: | ||||||||||||||||||||||||||||||||||||||
| Research and Development | ||||||||||||||||||||||||||||||||||||||
| Sales and Marketing | ||||||||||||||||||||||||||||||||||||||
| General and administrative (2) | ||||||||||||||||||||||||||||||||||||||
| Impairments | ||||||||||||||||||||||||||||||||||||||
| Income (loss) from operations | ( | |||||||||||||||||||||||||||||||||||||
| Add: | ||||||||||||||||||||||||||||||||||||||
| Interest income and other, net | ||||||||||||||||||||||||||||||||||||||
| Change in value of contingent consideration | ||||||||||||||||||||||||||||||||||||||
| Gain (loss) on disposal of fixed assets | ( | |||||||||||||||||||||||||||||||||||||
| (Loss) income on currency exchange | ( | |||||||||||||||||||||||||||||||||||||
| Income (loss) before income taxes | $ | $ | ( | |||||||||||||||||||||||||||||||||||
(1) Cost of revenue for the nine months ended May 31, 2026 and May 31, 2025, includes $3.3 million and $5.6 million, respectively of amortization within our Software reportable segment.
(2) General and administrative for the nine months ended May 31, 2026 and May 31, 2025, includes $0.2 million and $0.3 million of depreciation and 758000 and $1.0 million of amortization, respectively.
Revenue by lifecycle solution area and offering type (Software and Services):
| For the three months ended | ||||||||||||||||||||||||||
| (in thousands) | May 31, 2026 | % of total* | May 31, 2025 | % of total | ||||||||||||||||||||||
| Discovery | $ | % | $ | % | ||||||||||||||||||||||
| Development | % | % | ||||||||||||||||||||||||
| Clinical Operations | % | % | ||||||||||||||||||||||||
| Commercialization | % | % | ||||||||||||||||||||||||
| Total Software | % | % | ||||||||||||||||||||||||
| Discovery | % | % | ||||||||||||||||||||||||
| Development | % | % | ||||||||||||||||||||||||
| Commercialization | % | % | ||||||||||||||||||||||||
| Total Services | % | % | ||||||||||||||||||||||||
| Total | $ | % | $ | % | ||||||||||||||||||||||
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| For the nine months ended | ||||||||||||||||||||||||||
| (in thousands) | May 31, 2026 | % of total* | May 31, 2025 | % of total | ||||||||||||||||||||||
| Discovery | $ | % | $ | % | ||||||||||||||||||||||
| Development | % | % | ||||||||||||||||||||||||
| Clinical Operations | % | % | ||||||||||||||||||||||||
| Commercialization | % | % | ||||||||||||||||||||||||
| Total Software | % | % | ||||||||||||||||||||||||
| Discovery | % | % | ||||||||||||||||||||||||
| Development | % | % | ||||||||||||||||||||||||
| Commercialization | % | % | ||||||||||||||||||||||||
| Total Services | % | % | ||||||||||||||||||||||||
| Total | $ | % | $ | % | ||||||||||||||||||||||
*Percentages may not add due to rounding
The Company allocates revenues to geographic areas based on the locations of its customers. Geographical revenues for the three and nine months ended May 31, 2026, and May 31, 2025, were as follows:
| (in thousands) | Three Months Ended | |||||||||||||||||||
| May 31, 2026 | May 31, 2025 | |||||||||||||||||||
| $ | % of total* | $ | % of total | |||||||||||||||||
| Americas | $ | % | $ | % | ||||||||||||||||
| EMEA | % | % | ||||||||||||||||||
| Asia Pacific | % | % | ||||||||||||||||||
| Total | $ | % | $ | % | ||||||||||||||||
| (in thousands) | Nine Months Ended | |||||||||||||||||||
| May 31, 2026 | May 31, 2025 | |||||||||||||||||||
| $ | % of total* | $ | % of total | |||||||||||||||||
| Americas | $ | % | $ | % | ||||||||||||||||
| EMEA | % | % | ||||||||||||||||||
| Asia Pacific | % | % | ||||||||||||||||||
| Total | $ | % | $ | % | ||||||||||||||||
*Percentages may not add due to rounding
NOTE 9 – EMPLOYEE BENEFIT PLAN
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NOTE 10 - SUBSEQUENT EVENTS
The Company evaluated subsequent events through the date on which these condensed consolidated financial statements were issued.
Merger Agreement
On June 15, 2026, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with SP Evolution HoldCo II, LLC, a Delaware limited liability company and an affiliate of Altaris, LLC (“Parent”), and SP Evolution BidCo II, LLC, a Delaware limited liability company and wholly owned subsidiary of Parent (“Merger Sub”). Pursuant to the Merger Agreement, Merger Sub will merge with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of Parent.
Under the terms of the Merger Agreement, holders of the Company’s common stock will be entitled to receive cash consideration of $18.50 per share, without interest and subject to any applicable withholding taxes, for each share of the Company’s common stock outstanding immediately prior to the effective time of the Merger. The Merger Agreement also provides for the treatment of the Company's outstanding equity awards in accordance with its terms upon consummation of the Merger. The transaction has an implied equity value of approximately $375 million.
The completion of the Merger is subject to customary closing conditions, including approval by the Company’s stockholders, the receipt of required regulatory approvals, and the absence of any law or order prohibiting the consummation of the transaction. The Merger Agreement also contains customary representations, warranties, covenants, and termination provisions.
Upon completion of the Merger, the Company's common stock will cease to be listed on The Nasdaq Stock Market and registered under Section 12 of the Securities Exchange Act of 1934, as amended, and the Company will become a privately held company.
In connection with the Merger Agreement, Dr. Walter Woltosz the Company's Chairman of the Board and his spouse, Virginia E. Woltosz, entered into a Voting and Support Agreement pursuant to which he agreed, among other things and subject to the terms and conditions of such agreement, to vote the shares of the Company’s common stock beneficially owned by him in favor of the adoption of the Merger Agreement.
In connection with the execution of the Merger Agreement, the Board of Directors approved transaction bonus arrangements for certain executive officers and other employees. Subject to the terms of the applicable arrangements, the bonuses are payable only upon the consummation of the Merger.
Subject to the satisfaction or waiver of the closing conditions, the parties currently expect the Merger to be completed during the fourth quarter of calendar 2026.
Management has concluded that the execution of the Merger Agreement represents a nonrecognized subsequent event under ASC 855, Subsequent Events, requiring disclosure but not adjustment to the condensed consolidated financial statements.
A copy of the Merger Agreement is filed as Exhibit 2.1 to this Quarterly Report on Form 10-Q, and the Voting and Support Agreement is incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on June 17, 2026
ITEM 2 – 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 macroeconomic 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.
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Our 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 quarterly report and the documents incorporated in this Quarterly Report by reference contain forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact contained in this Quarterly Report 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 Quarterly Report 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. The forward-looking statements contained primarily in this Quarterly Report include but are not limited to:
•the proposed Merger and the anticipated timing, completion of the transaction;
•the ability of the parties to satisfy the conditions to closing the Merger, including obtaining stockholder approval and required regulatory approvals;
•the expected timing and outcome of the stockholder meeting relating to the proposed Merger;
•the availability and sufficiency of financing arrangements for the proposed Merger and the potential impact of any financing-related developments on the timing or completion of the transaction;
•the Company's business, operating strategy, and strategic initiatives pending completion of the Merger;
•anticipated operating results, financial performance, cash flows, liquidity, and capital resources;
•expected demand for the Company's software products and consulting services;
•investments in research and development, including cloud-enabled platforms and artificial intelligence-enabled capabilities;
•expected revenues, gross margins, operating expenses, profitability, and tax rates;
•capitalized software development costs, goodwill, intangible assets, and impairment assessments;
•expected future acquisitions, strategic partnerships, and investments;
•the impact of recently issued accounting standards; and
•other statements that are not historical facts.
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, as updated by Part II, Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q and elsewhere in this document and in our other filings with the SEC.
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Forward-looking statements are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this Quarterly Report are made as of the date of this filing 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 May 31, 2026, and May 31, 2025
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| (in thousands) | Three Months Ended | % of Revenue | ||||||||||||||||||||||||||||||||||||
| May 31, 2026 | May 31, 2025 | May 31, 2026 | May 31, 2025 | $ Change | % Change | |||||||||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||||||||||||
| Software | $ | 12,608 | $ | 12,615 | 58 | % | 62 | % | $ | (7) | 0 | % | ||||||||||||||||||||||||||
| Services | 9,278 | 7,748 | 42 | % | 38 | % | 1,530 | 20 | % | |||||||||||||||||||||||||||||
| Total revenues | 21,886 | 20,363 | 100 | % | 100 | % | 1,523 | 7 | % | |||||||||||||||||||||||||||||
| Cost of revenue | ||||||||||||||||||||||||||||||||||||||
| Software | 1,513 | 2,540 | 7 | % | 12 | % | (1,027) | -40 | % | |||||||||||||||||||||||||||||
| Services | 5,246 | 4,791 | 24 | % | 24 | % | 455 | 9 | % | |||||||||||||||||||||||||||||
| Total cost of revenues | 6,759 | 7,331 | 31 | % | 36 | % | (572) | -8 | % | |||||||||||||||||||||||||||||
| Gross profit | 15,127 | 13,032 | 69 | % | 64 | % | 2,095 | 16 | % | |||||||||||||||||||||||||||||
| Research and development | 3,406 | 1,216 | 16 | % | 6 | % | 2,190 | 180 | % | |||||||||||||||||||||||||||||
| Sales and marketing | 2,538 | 2,680 | 12 | % | 13 | % | (142) | -5 | % | |||||||||||||||||||||||||||||
| General and administrative | 4,684 | 6,141 | 21 | % | 30 | % | (1,457) | -24 | % | |||||||||||||||||||||||||||||
| Impairments | — | 77,221 | 0 | % | 379 | % | (77,221) | NM | ||||||||||||||||||||||||||||||
| Total operating expenses | 10,628 | 87,258 | 49 | % | 429 | % | (76,630) | -88 | % | |||||||||||||||||||||||||||||
| Income (loss) from operations | 4,499 | (74,226) | 21 | % | -365 | % | 78,725 | -106 | % | |||||||||||||||||||||||||||||
| Other income, net | 307 | 182 | 1 | % | 1 | % | 125 | 69 | % | |||||||||||||||||||||||||||||
| Income (loss) before income taxes | 4,806 | (74,044) | 22 | % | -364 | % | 78,850 | -106 | % | |||||||||||||||||||||||||||||
| Income tax (expense) benefit | (1,231) | 6,727 | -6 | % | 33 | % | (7,958) | -118 | % | |||||||||||||||||||||||||||||
| Net income (loss) | $ | 3,575 | $ | (67,317) | 16 | % | -331 | % | $ | 70,892 | -105 | % | ||||||||||||||||||||||||||
Revenues
Revenues increased by $1.5 million, or 7%, to $21.9 million for the three months ended May 31, 2026, compared to $20.4 million for the three months ended May 31, 2025. This increase is primarily due to a $1.5 million, or 20%, increase in service-related revenue when compared to the three months ended May 31, 2025. The software-related revenue was flat compared to the three months ended May 31, 2025. The service-related revenue increase of $1.5 million, or 20%, compared to the three months ended May 31, 2025, was primarily due to organic revenue growth of $1.5 million from Development solutions.
Cost of revenues
Cost of revenues decreased by $0.6 million, or 8%, for the three months ended May 31, 2026, compared to the three months ended May 31, 2025. This decrease is primarily due to a $1.0 million, or 40%, decrease in software-related costs, partially offset by a $0.5 million, or 9%, increase in service-related costs.
The software-related costs decrease of $1.0 million, or 40%, compared to the three months ended May 31, 2025, was primarily due to less amortization of $1.1 million, mainly due to the impairment of the Pro-ficiency developed technology in the third quarter of fiscal 2025.
The service-related costs increased $0.5 million, or 9%, compared to the three months ended May 31, 2025; the increase was primarily due to higher fulfillment costs associated with increased client services activity. The modest increase in service-related costs relative to revenue growth also reflected improved operating efficiency from headcount reductions implemented in the third quarter of fiscal 2025, and organizational changes that shifted certain internal resources from supporting services to research and development, improved billable utilization, and higher average yields.
Gross profit
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Gross profit increased $2.1 million, or 16%, to $15.1 million for the three months ended May 31, 2026, compared to $13.0 million for the three months ended May 31, 2025. This increase was primarily driven by higher revenues, lower software-related costs, organizational changes that shifted certain internal resources from supporting services to research and development, improved billable utilization, and higher average yields.
Software gross profit increased by $1.0 million to 88% gross margin compared to 80% gross margin for the three months ended May 31, 2025. This improvement was primarily driven by lower software-related costs, largely reflecting reduced amortization expense mainly due to the impairment of the Pro-ficiency developed technology in the third quarter of fiscal 2025.
Services gross profit increased by $1.1 million to 43% gross margin compared to 38% gross margin for the three months ended May 31, 2025. The increase was primarily attributable to higher services revenue from increased client services activity within Development solutions, as well as improved operating efficiency driven by headcount reductions implemented in the third quarter of fiscal 2025, organizational changes that shifted certain internal resources from supporting services to research and development, higher billable utilization, and higher average yields.
Overall gross margin was 69% for the three months ended May 31, 2026, compared to 64% for the three months ended May 31, 2025, primarily due to higher services revenue, lower software amortization expense, organizational changes that shifted certain internal resources from supporting services to research and development, higher billable utilization, and higher average yields.
Research and development
We incurred $4.1 million of research and development costs during the three months ended May 31, 2026. Of this amount, $0.7 million was capitalized as part of capitalized software development costs, and $3.4 million was expensed. We incurred $2.1 million of research and development costs during the three months ended May 31, 2025. Of this amount, $0.9 million was capitalized, and $1.2 million was expensed. Research and development spend increased by $2.0 million, or 98%, for the three months ended May 31, 2026, compared to the three months ended May 31, 2025, representing our continued investment in innovation for future growth, including the development of an integrated, cloud-enabled modeling ecosystem that connects our validated scientific engines with AI-driven capabilities and workflow automation across the drug development lifecycle. The increase was primarily attributable to higher personnel-related costs, including organizational changes that shifted certain internal resources from supporting services to research and development, as well as increased efforts to support these development initiatives.
R&D spend as a percentage of revenue increased to 16% for the three months ended May 31, 2026, from 6% for the three months ended May 31, 2025, representing our continued investment in innovation for future growth. Total R&D cost (defined as capitalized R&D plus R&D expense) was 19% of revenue for the three months ended May 31, 2026, compared to 10% for the three months ended May 31, 2025.
Sales and marketing expenses
Sales and marketing expenses decreased by $0.1 million, or 5%, to $2.5 million for the three months ended May 31, 2026, compared to $2.7 million for the three months ended May 31, 2025. Sales and marketing as a percentage of revenue decreased to 12% for the three months ended May 31, 2026, from 13% for the three months ended May 31, 2025. The decrease is attributable to the headcount reduction implemented in the third quarter of fiscal 2025.
General and administrative expenses
G&A expenses decreased by $1.5 million, or 24%, to $4.7 million for the three months ended May 31, 2026, compared to $6.1 million for the three months ended May 31, 2025. G&A as a percentage of revenue, decreased to 21% for the three months ended May 31, 2026, from 30% for the three months ended May 31, 2025. The decrease was primarily due to lower corporate support costs and lower non-recurring expenses, including the absence of expenses associated with the company-wide employee summit that occurred in the prior-year period.
Impairments
During the three months ended May 31, 2025, the Company recorded $77.2 million of non-cash impairment charges. No impairment charges were recorded during the three months ended May 31, 2026.
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Other income
Total other income was $0.3 million for the three months ended May 31, 2026, compared to $0.2 million for the three months ended May 31, 2025. The increase was primarily driven by higher interest income due to higher average balances of cash invested in interest-bearing accounts. For the three months ended May 31, 2025, the Company also recognized a $0.6 million gain from the change in fair value of contingent consideration related to the Immunetrics holdback liability, which was subsequently settled.
Income tax expense
The expense for income taxes was $1.2 million for the three months ended May 31, 2026, compared to income tax benefit of $6.7 million for the three months ended May 31, 2025. The Company tax rate increased to 26% for the three months ended May 31, 2026, compared to 9% for the three months ended May 31, 2025. The increase in the tax rate is primarily due to higher income in the US, which is taxed at higher tax rate than income in France. The France effective tax rate increased from 2% to 7% due to less qualifying R&D expenditures in France which drove up the effective tax rate. The Company incurred costs with respect to the Merger Agreement. These costs are deductible for GAAP purposes. Generally, many of the costs incurred must be capitalized and are not deductible for tax purposes. The fiscal year had a smaller benefit from Foreign-Derived Intangible Income ("FDII"). In the current fiscal year, the Company is accelerating deductions elected under the One Big Beautiful Bill Act ("OBBBA"). These deductions are expected to be favorable to cash flows as they accelerate the timing of tax benefits and reduce near-term cash tax payments.
Results of Operations
Comparison of Nine Months Ended May 31, 2026, and May 31, 2025
| (in thousands) | Nine Months Ended | % of Revenue | |||||||||||||||||||||||||||
| May 31, 2026 | May 31, 2025 | May 31, 2026 | May 31, 2025 | $ Change | % Change | ||||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||||||||
| Software | $ | 36,126 | $ | 36,814 | 56 | % | 60 | % | $ | (688) | -2 | % | |||||||||||||||||
| Services | 28,472 | 24,905 | 44 | % | 40 | % | 3,567 | 14 | % | ||||||||||||||||||||
| Total revenues | 64,598 | 61,719 | 100 | % | 100 | % | 2,879 | 5 | % | ||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||||||||
| Software | 4,573 | 7,765 | 7 | % | 13 | % | (3,192) | -41 | % | ||||||||||||||||||||
| Services | 17,864 | 17,577 | 28 | % | 28 | % | 287 | 2 | % | ||||||||||||||||||||
| Total cost of revenues | 22,437 | 25,342 | 35 | % | 41 | % | (2,905) | -11 | % | ||||||||||||||||||||
| Gross profit | 42,161 | 36,377 | 65 | % | 59 | % | 5,784 | 16 | % | ||||||||||||||||||||
| Research and development | 9,856 | 5,207 | 15 | % | 8 | % | 4,649 | 89 | % | ||||||||||||||||||||
| Sales and marketing | 8,647 | 9,248 | 13 | % | 15 | % | (601) | -6 | % | ||||||||||||||||||||
| General and administrative | 12,816 | 16,089 | 20 | % | 26 | % | (3,273) | -20 | % | ||||||||||||||||||||
| Impairments | — | 77,221 | 0 | % | 125 | % | (77,221) | NM | |||||||||||||||||||||
| Total operating expenses | 31,319 | 107,765 | 48 | % | 175 | % | (76,446) | -71 | % | ||||||||||||||||||||
| Income (loss) from operations | 10,842 | (71,388) | 17 | % | -116 | % | 82,230 | -115 | % | ||||||||||||||||||||
| Other income, net | 820 | 1,122 | 1 | % | 2 | % | (302) | -27 | % | ||||||||||||||||||||
| Income (loss) before income taxes | 11,662 | (70,266) | 18 | % | -114 | % | 81,928 | -117 | % | ||||||||||||||||||||
| Income tax (expense) benefit | (2,876) | 6,229 | -4 | % | 10 | % | (9,105) | -146 | % | ||||||||||||||||||||
| Net income (loss) | $ | 8,786 | $ | (64,037) | 14 | % | -104 | % | $ | 72,823 | -114 | % | |||||||||||||||||
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Revenues
Revenues increased by $2.9 million, or 5%, to $64.6 million for the nine months ended May 31, 2026, compared to $61.7 million for the nine months ended May 31, 2025. This increase is primarily due to a $3.6 million, or 14%, increase in service-related revenue and a $0.7 million, or 2%, decrease in software-related revenue when compared to the nine months ended May 31, 2025. The service-related revenue increase of $3.6 million, or 14%, compared to the nine months ended May 31, 2025, was primarily due to organic revenue growth within Development solutions of $2.7 million and Commercialization solutions of $0.8 million. The software-related revenue decrease of $0.7 million, or 2%, compared to the nine months ended May 31, 2025, was primarily due to Clinical Operations solutions revenue decline of $2.0 million, partially offset by revenue growth of $1.0 million and $0.4 million within Development solutions and Discovery solutions, respectively.
Cost of revenues
Cost of revenues decreased by $2.9 million, or 11%, for the nine months ended May 31, 2026, compared to the nine months ended May 31, 2025. This decrease is primarily due to a $3.2 million or 41% decrease in software-related costs and a $0.3 million or 2% increase in service-related costs.
The software-related costs decrease of $3.2 million or 41%, compared to the nine months ended May 31, 2025, was mainly attributable to $3.1 million less amortization of acquired technology from the Pro-ficiency as the balances were impaired in the third quarter of fiscal 2025.
The service-related costs increase of $0.3 million or 2%, compared to the nine months ended May 31, 2025. The increase in service-related costs was primarily due to higher fulfillment costs associated with increased client services activity. The modest increase in service-related costs relative to service-related revenue growth reflected improved operating efficiency resulting from headcount reductions implemented in the third quarter of fiscal 2025, organizational changes that shifted certain internal resources from supporting services to research and development.
Gross profit
Gross profit increased to $42.2 million or 65% gross margin for the nine months ended May 31, 2026, compared to $36.4 million or 59% gross margin for the nine months ended May 31, 2025. The increase was primarily attributable to higher service-related revenues, lower software-related costs, organizational changes that shifted certain internal resources from supporting services to research and development, and improved operating efficiency.
Software gross profit increased by $2.5 million, and software gross margin increased to 87% for the nine months ended May 31, 2026, compared to 79% for the nine months ended May 31, 2025. This improvement was primarily due to lower software-related costs, largely reflecting reduced amortization expense following the impairment of the Pro-ficiency acquired technology in the third quarter of fiscal 2025, partially offset by lower software-related revenue driven primarily by a decline in Clinical Operations solutions revenue.
Services gross profit increased by $3.3 million, and services gross margin increased to 37% for the nine months ended May 31, 2026, compared to 29% for the nine months ended May 31, 2025. This improvement was primarily due to higher service-related revenue from organic growth within Development solutions and Commercialization solutions, together with improved operating efficiency resulting from headcount reductions implemented in the third quarter of fiscal 2025 and organizational changes that shifted certain internal resources from supporting services to research and development.
Overall gross margin increased to 65% for the nine months ended May 31, 2026, compared to 59% for the nine months ended May 31, 2025, primarily due to higher service-related revenues, lower software amortization expense, organizational changes that shifted certain internal resources from supporting services to research and development, and improved operating efficiency.
Research and development
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We incurred $12.3 million of research and development costs during the nine months ended May 31, 2026. Of this amount, $2.4 million was capitalized as part of capitalized software development costs and $9.9 million was expensed. We incurred $7.6 million of research and development costs during the nine months ended May 31, 2025. Of this amount, $2.4 million was capitalized and $5.2 million was expensed. Research and development spend increased by $4.7 million, or 62%, for the nine months ended May 31, 2026, compared to the nine months ended May 31, 2025, 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, including organizational changes that shifted certain internal resources from supporting services to research and development, as well as increased efforts to support these development initiatives.
R&D spend as a percentage of revenue increased to 15% for the nine months ended May 31, 2026, from 8% for the nine months ended May 31, 2025, representing our continued investment in innovation for future growth, including the development of an integrated, cloud-enabled modeling ecosystem that connects our validated scientific engines with AI-driven capabilities and workflow automation across the drug development lifecycle. Total R&D cost (defined as capitalized R&D plus R&D expense) was 19% of revenue for the nine months ended May 31, 2026, compared to 12% for the nine months ended May 31, 2025.
Sales and marketing expenses
Sales and marketing expenses decreased by $0.6 million, or 6%, to $8.6 million for the nine months ended May 31, 2026, compared to $9.2 million for the nine months ended May 31, 2025. The decrease is attributable to lower compensation cost from the headcount reduction implemented in the third quarter of fiscal 2025, offset by higher customer-facing activities to support commercial execution and demand generation across our offerings.
General and administrative expenses
General and administrative (“G&A”) expenses decreased by $3.3 million, or 20%, to $12.8 million for the nine months ended May 31, 2026, compared to $16.1 million for the nine months ended May 31, 2025. The decrease primarily reflected lower corporate support costs and reduced non-recurring spending. In addition, facilities costs decreased as we continued to optimize our real estate footprint consistent with a remote-first operating model.
Impairments
During the nine months ended May 31, 2025, the Company recorded $77.2 million of non-cash impairment charges. No impairment charges were recorded during the nine months ended May 31, 2026.
Other income
Total other income was $0.8 million for the nine months ended May 31, 2026, compared to $1.1 million for the nine months ended May 31, 2025. The decrease was primarily attributable to a $0.6 million gain recognized in the prior-year period from the change in fair value of the Immunetrics earnout liability, as no earnout payment was anticipated for the second earnout measurement period. The liability was subsequently settled. This decrease was partially offset by a $0.4 million increase in interest income due to higher average balances of cash invested in interest-bearing accounts.
Income tax expense
The expense for income taxes was $2.9 million for the nine months ended May 31, 2026, compared to an income tax benefit of $6.2 million for the nine months ended May 31, 2025. The Company tax rate increased to 25% for the nine months ended May 31, 2026, compared to 9% for the nine months ended May 31, 2025. The increase in the tax rate is primarily due to the result of a favorable discrete item in the prior year that did not recur in the current year, a less favorable jurisdictional mix of earnings between the U.S. and France, increased unfavorable Global Intangible Low-Taxed Income ("GILTI") impacts driven by higher French taxable income, and a lower Foreign-Derived Intangible Income ("FDII") benefit. In addition, certain items affecting the current-year effective tax rate relate to accelerated deductions elected under the One Big Beautiful Bill Act ("OBBBA"). These deductions are expected to be favorable to cash flows as they accelerate the timing of tax benefits and reduce near-term cash tax payments.
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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 by 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.
Pursuant to the Merger Agreement entered into on June 15, 2026, the Company is subject to customary interim operating covenants pending completion of the merger. These covenants, subject to specified exceptions and the prior written consent of Parent, restrict certain capital allocation and corporate activities, including repurchases or redemptions of common stock, payment of dividends or other distributions, issuance of equity securities, incurrence of certain indebtedness, acquisitions and investments, significant capital expenditures, and certain other actions outside the ordinary course of business. Accordingly, the Company expects to operate within these contractual limitations until the merger is completed or the Merger Agreement is terminated.
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
As of May 31, 2026, the Company had $35.3 million in cash and cash equivalents, $14.7 million in short-term investments, and net working capital of $61.6 million. Short-term investments consist of certificate of deposits, corporate bonds, and cash equivalents. The investments are U.S.-dollar-denominated securities.
Cash Flows
Operating Activities
Our cash flows from operating activities primarily include net income adjusted for (i) non-cash items included in net income, such as provisions (recoveries) for credit losses, depreciation and amortization, stock-based compensation, deferred taxes, and other non-cash items and (ii) changes in the balances of operating assets and liabilities. Net cash provided by operating activities was $19.4 million for the nine months ended May 31, 2026, compared to $12.5 million for the nine months ended May 31, 2025. The $6.8 million improvement was driven primarily by an increase in cash-adjusted net income, an increase in other liabilities and a decrease in deferred taxes, partially offset by an increase in accounts receivable.
Investing Activities
Net cash used in investing activities during the nine months ended May 31, 2026, was $15.4 million, compared to net cash provided by investing activities of $5.4 million during the nine months ended May 31, 2025. The decrease of $20.7 million primarily reflects deployment and rebalancing of our short-term investment portfolio and capitalized software development to support product and platform enhancements. During the nine months ended May 31, 2026, we invested $28.2 million in short-term investments as part of our treasury strategy to prudently invest excess cash while preserving liquidity and capital, and we incurred $2.3 million of capitalized computer software development costs to support ongoing product development and technology improvements. These uses of cash were partially offset by $15.0 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 nine months ended May 31, 2026, was $0.5 million, compared to cash used in financing activities of $1.3 million for the nine months ended May 31, 2025. The $1.7 million increase was primarily attributable to the prior-year cash settlement of $1.6 million for holdback obligations related to the Immunetrics acquisition, as well as higher proceeds from the exercise of stock options.
Share Repurchases
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For the three and nine months ended May 31, 2026, and May 31, 2025, respectively, we did not repurchase any shares of Company stock. As of May 31, 2026, $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.
Pursuant to the Merger Agreement entered into on June 15, 2026, the Company is subject to customary interim operating covenants pending completion of the merger. These covenants, subject to specified exceptions and the prior written consent of Parent, restrict certain capital allocation and corporate activities, including repurchases or redemptions of common stock, payment of dividends or other distributions, issuance of equity securities, incurrence of certain indebtedness, acquisitions and investments, significant capital expenditures, and certain other actions outside the ordinary course of business. Accordingly, the Company expects to operate within these contractual limitations until the merger is completed or the Merger Agreement is terminated.
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 minimis nature 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 $0.7 million and $0.9 million for the three months ended May 31, 2026, and May 31, 2025, respectively, and $2.4 million and $2.4 million for the nine months ended May 31, 2026, and May 31, 2025, respectively.
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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 $0.8 million and $0.8 million, respectively, for the three months ended May 31, 2026, and May 31, 2025, respectively, and $2.5 million and $2.4 million, for the nine months ended May 31, 2026, and May 31, 2025, 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 May 31, 2026, the Company determined that it had two reporting units - Software and Services.
As of May 31, 2026, the entire balance of goodwill was attributed to both 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 and nine months ended May 31, 2026. During the three and nine months ended May 31, 2025, the Company recorded impairments charges of $77.2 million.
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.
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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 related to stock options, not including shares issued to directors for services, was $1.6 million and $1.4 million for the three months ended May 31, 2026, and May 31, 2025, respectively, and $4.6 million and $4.7 million for the nine months ended May 31, 2026, and May 31, 2025, respectively.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As of May 31, 2026, there has been no material change in our exposure to market risk from that described in Item 7A of our Annual Report.
Item 4. Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of May 31, 2026. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, management concluded as of May 31, 2026, that our disclosure controls and procedures were effective.
Changes in Internal Controls over Financial Reporting
No change in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For a description of our material pending legal proceedings, please see Note 4, Commitments and Contingencies, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.
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Item 1A. Risk Factors
Please carefully consider the information set forth in this Quarterly Report and the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2025, which could materially affect our business, financial condition, or future results. The risks described in our Annual Report, as well as other risks and uncertainties, could materially and adversely affect our business, results of operations, and financial condition, which in turn could materially and adversely affect the trading price of shares of our common stock. Other than described below, there have been no material updates or changes to the risk factors previously disclosed in our Annual Report; provided, however, additional risks not currently known or currently material to us may also harm our business.
Risks Related to the Pending Merger
On June 15, 2026, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among, SP Evolution HoldCo II, LLC, a Delaware limited liability company and an affiliate of Altaris, LLC (“Parent”) and SP Evolution BidCo II, LLC, a Delaware limited liability company and a wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving as a wholly owned subsidiary of Parent (the “Surviving Corporation”). pursuant to which it has agreed to be acquired by Altaris, subject to the satisfaction or waiver of customary closing conditions, including approval by the Company's shareholders and receipt of required regulatory approvals. The pending transaction subjects the Company to a number of risks, including:
•The Merger may not be completed in a timely manner or at all due to the failure to satisfy closing conditions, including obtaining required shareholder or regulatory approvals.
•The announcement and pendency of the Merger may adversely affect our relationships with customers, employees, business partners, suppliers, and other third parties, which could adversely affect our operating results.
•We may experience challenges in retaining key employees while the Merger is pending, which could adversely affect our business and operations.
•The Merger agreement contains restrictions on the conduct of our business prior to closing, which may limit our ability to pursue certain business opportunities or strategic initiatives.
•We have incurred, and expect to continue to incur, significant transaction-related costs regardless of whether the Merger is completed.
•The pendency of the Merger could result in litigation or regulatory proceedings that could delay or prevent the completion of the transaction or otherwise result in significant costs.
•If the Merger is not completed, our business, financial condition, results of operations, stock price, and future prospects could be adversely affected.
•The occurrence of any of these events could have a material adverse effect on our business, financial condition, results of operations, cash flows, or the market price of our common stock.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities
None.
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Rule 10b5-1 Trading Plans
During the three months ended May 31, 2026, none of our directors or officers adopted terminated
Item 6. EXHIBITS
| EXHIBIT NUMBER | DESCRIPTION | |||||||
| 2.1 | Agreement and Plan of Merger, dated June 15, 2026 by and among the Company, SP Evolution HoldCo II, LLC and SP Evolution BidCo II, LLC | |||||||
| 10.1† | Third Amendment to 2021 Equity Incentive Plan, dated February 12, 2026, incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on February 12, 2026. | |||||||
| 10.2 | Voting and Support Agreement dated June 15, 2026, by and among SP Evolution HoldCo II, LLC, SP Evolution BidCo II, LLC, Dr. Walter S. Woltosz and Virginia E. Woltosz, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 17, 2026. | |||||||
| 31.1 * | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||||||
| 31.2 * | Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||||||
| 32.1 ** | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||||||
| 101.INS*** | Inline XBRL Instance Document | |||||||
| 101.SCH*** | Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents | |||||||
| 104*** | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101 attachments). | |||||||
_____________________________
| * | Filed herewith. | |||||||
| ** | Furnished herewith. | |||||||
| *** | The XBRL related information in Exhibit 101 shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document. | |||||||
| † | Refers to management contracts or compensatory plans or arrangements. | |||||||
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SIGNATURE
In accordance with Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Research Triangle Park, State of North Carolina, on July 9, 2026.
| SIMULATIONS PLUS, INC. | |||||||||||
| Date: | July 9, 2026 | By: | /s/ Will Frederick | ||||||||
| Will Frederick Executive Vice President and Chief Financial Officer (Principal financial officer) | |||||||||||