So here’s a classic earnings story: a company beats expectations for the quarter, but then tells investors to maybe not get too excited about the full year. Simulations Plus Inc. (SLP), which makes software for drug discovery, did just that on Thursday, reporting solid second-quarter results for fiscal 2026 while issuing a bit of a mixed bag for its annual forecast.

The headline numbers were good. Revenue came in at $24.29 million, which is an 8% increase from a year ago and, importantly, edged out the consensus estimate of $21.67 million. On the bottom line, adjusted earnings per share were $0.35, beating the expected $0.20 and up from $0.31 in the prior-year period. So far, so straightforward.

Digging into the segments, growth was pretty balanced. Software revenue grew 9% to $14.6 million, and services revenue grew 8% to $9.7 million. The company also saw its profitability improve: gross profit was $16.1 million with a margin of 66%, up from $13.1 million and a 59% margin a year ago. Adjusted EBITDA was $8.7 million, or 36% of total revenue, compared to $6.6 million (29%) previously. That’s the kind of operational leverage investors like to see.

CEO Shawn O’Connor said the company posted a “solid second-quarter performance,” with software growth fueled by strong demand for discovery and development solutions. He noted this was partly offset by a planned decline in clinical operations software—sometimes you have to prune one branch to let others grow. The company also added new customers and expanded relationships with existing ones, and services growth was driven by development solutions. Strong bookings led to an approximately 18% increase in backlog, which is a good sign for future revenue.

Now, about that guidance. This is where things get a little more nuanced. For the full fiscal year 2026, Simulations Plus lowered its adjusted earnings per share guidance. It now expects $0.75 to $0.85, down from its previous range of $1.03 to $1.10. For context, the consensus estimate was $0.54, so the new guidance is still above what analysts were expecting, but it’s a downward revision from the company’s own prior outlook. On the sales side, the company affirmed its guidance of $79 million to $82 million, which brackets the consensus of $80.47 million. It also expects an adjusted EBITDA margin of 26% to 30% for the year.

So why trim the earnings outlook while keeping sales steady? O’Connor pointed to favorable market conditions that continue to support growth. He highlighted factors like global pricing agreements, easing tariff concerns, and improving funding conditions, all of which are helping clients. He also pointed to recent regulatory guidance on new approach methodologies (NAMs) as a driver of increased customer activity. This momentum, he said, is showing up in strong software renewals, new client wins, and services bookings. Overall, he expressed satisfaction with the first half of the fiscal year and optimism about continued business momentum.

Analysts are picking up on some of these themes, too. William Blair noted on Friday, “On top of the more constructive overall environment, Simulations Plus is benefiting from growing regulatory guidance around adoption of NAMs, specifically in the discovery and clinical spaces, as well as growing interest in AI, which is accelerating the industry’s transition toward data-driven drug development.” In other words, regulatory shifts and the AI boom in biotech are tailwinds for the company’s business.

As for the stock reaction, Simulations Plus shares were down 1.31% at $12.82 at the time of publication on Friday. That’s a modest move, reflecting the mixed nature of the report: a beat on the quarter, but a tempered view on full-year profits. It’s the kind of update that keeps investors watching closely to see if those favorable market trends translate into sustained performance.