Core Insights - Schrödinger's Q4 2024 results and 2025 guidance are solid, supported by a recent collaboration with Novartis that will help minimize cash burn in the coming years [1] Group 1: Company Overview - Schrödinger is focused on drug discovery and has established a collaboration with Novartis, which is expected to enhance its operational efficiency [1] - The company is positioned to benefit from a changing investment landscape characterized by an aging population and low population growth, which may create unique investment opportunities [1] Group 2: Investment Strategy - Narweena, an asset manager led by Richard Durant, seeks to identify market dislocations due to misunderstandings of long-term business prospects, focusing on companies with secular growth opportunities [1] - The investment approach emphasizes company and industry fundamentals, aiming to uncover unique insights and targeting smaller cap stocks in markets with less obvious competitive advantages [1] - The current economic environment is marked by a decline in infrastructure investment needs and a shift towards asset-light businesses, leading to increased competition for limited investment opportunities [1]

Financial Data and Key Metrics Changes - Total revenue for 2024 was $208 million, a decrease from $217 million in 2023 [30] - Software revenue grew by 13.3% from $159 million to $180 million, with hosted revenue increasing from $20 million to $35 million [30][34] - Q4 total revenue was $88.3 million, an increase of 19% compared to Q4 2023 [18] - Q4 software revenue was $79.7 million, up 16% from Q4 2023 [19] - The net loss for 2024 was $187 million or $2.57 per diluted share, compared to a net income of $41 million or $0.54 per diluted share in 2023 [34] Business Line Data and Key Metrics Changes - The number of software customers with an annual contract value (ACV) greater than $5 million increased from 4 to 8, while those with ACV greater than $1 million rose from 27% to 31% [12] - Total ACV increased by 24% to $191 million [12] - Drug discovery revenue for 2024 was $27 million, down from $58 million in 2023 [32] Market Data and Key Metrics Changes - Hosted revenue contributed 20% of software revenue for 2024, compared to 13% in 2023 [30] - The software gross margin for the year was 79.5%, down from 81.5% in 2023 [32] Company Strategy and Development Direction - The company aims to drive continued increases in the adoption of its computational technology and enterprise informatics platform in 2025 [13] - Plans to release several new products and solutions, including predictive toxicology technology and enhancements to biologics discovery technologies [14] - The company is optimistic about the broad momentum continuing into 2025, with expectations for software revenue growth in the range of 10% to 15% [36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's position for a transformational 2025, with strong operational, financial, and strategic foundations [40] - The company does not expect significant growth from the Chinese market, which represents less than 5% of revenue [39] Other Important Information - The company reported a cash and marketable securities balance of $367 million at the end of Q4 2024, down from $469 million at the end of Q4 2023 [35] - The predictive toxicology project is expected to contribute significantly to revenue in 2025 [41] Q&A Session Summary Question: What is your assumption behind your 2025 drug discovery revenue guidance? - The increase in drug discovery revenue is broad-based, with contributions from various collaborations, including the Novartis partnership [57] Question: How should we think about the cadence for drug discovery revenues? - Drug discovery revenues are likely to be somewhat back-end weighted, with contributions scaling up throughout the year [125] Question: What do customers consider when moving from on-prem to hosted? - The transition to hosted contracts is seen as more seamless for delivering licenses, and the company expects a gradual increase in hosted revenue [76][78] Question: What are the stickiest aspects driving customer retention? - Customer retention is driven by the technology's impact on projects, leading to improved quality and faster development of candidates [90] Question: What is the gating factor for advancing new clinical candidates? - The company is currently evaluating potential partnerships for its clinical assets, with ongoing discussions as data becomes available [114]

Group 1: Earnings Performance - Schrodinger, Inc. reported a quarterly loss of $0.55 per share, which was worse than the Zacks Consensus Estimate of a loss of $0.35, and compared to a loss of $0.32 per share a year ago, indicating a significant earnings surprise of -57.14% [1] - Over the last four quarters, the company has only surpassed consensus EPS estimates once, while it posted revenues of $88.32 million for the quarter ended December 2024, exceeding the Zacks Consensus Estimate by 5.79% and up from $74.13 million a year ago [2] Group 2: Stock Performance and Outlook - Schrodinger shares have increased by approximately 9.1% since the beginning of the year, outperforming the S&P 500's gain of 1.3% [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] Group 3: Estimate Revisions and Industry Context - The trend for estimate revisions for Schrodinger is currently unfavorable, resulting in a Zacks Rank 4 (Sell) for the stock, indicating expected underperformance in the near future [6] - The current consensus EPS estimate for the upcoming quarter is -$0.78 on revenues of $47.5 million, and for the current fiscal year, it is -$2.08 on revenues of $272.34 million [7] - The Medical Info Systems industry, to which Schrodinger belongs, is currently ranked in the bottom 49% of over 250 Zacks industries, suggesting that the industry outlook could materially impact the stock's performance [8]

Financial Performance - Total revenue for 4Q24 was $88.3 million, a 19% increase compared to $74.1 million in 4Q23[13, 23] - Software revenue for 4Q24 was $79.7 million, a 16% increase compared to $68.7 million in 4Q23[13, 23] - Drug discovery revenue for 4Q24 was $8.7 million, a 58% increase compared to $5.5 million in 4Q23[13, 23] - Total revenue for FY24 was $207.5 million, a 4.2% decrease compared to $216.7 million in FY23[13, 25] - Software revenue for FY24 was $180.4 million, a 13% increase compared to $159.1 million in FY23[13, 25] - Drug discovery revenue for FY24 was $27.1 million, a 53% decrease compared to $57.5 million in FY23[13, 25] 2025 Financial Guidance - The company expects software revenue growth of 10% - 15% in 2025[13, 43] - The company expects drug discovery revenue between $45 million and $50 million in 2025[13, 43] - The company expects operating expense growth to be less than 5% in 2025[13, 43] Key Performance Indicators - Total annual contract value (ACV) increased from $154.2 million in 2023 to $190.8 million in 2024[39] - The number of customers with ACV ≥$5M doubled from 4 in 2023 to 8 in 2024[39]

Revenue and Financial Performance - The company achieved total revenue of $207.5 million for the year ended December 31, 2024, with a net loss of $187.1 million[40]. - The annual contract value (ACV) for the company was $190.8 million in 2024, up from $154.2 million in 2023, indicating a significant growth in revenue[58]. - The customer retention rate for those with an ACV of at least $100,000 was 95% for the year ended December 31, 2024, demonstrating strong customer loyalty[59]. - In 2024, 19 of the top 20 pharmaceutical companies licensed the company's software solutions, contributing $74.7 million, or 41%, to total software revenue[31]. - The company had 1,752 active customers as of December 31, 2024, with the top 10 customers representing approximately 39% of software revenue[54]. Customer Base and Contracts - The company had 235, 222, and 227 customers with an annual contract value (ACV) of at least $100,000 for the years ended December 31, 2024, 2023, and 2022, representing 87%, 83%, and 82% of total ACV, respectively[31]. - The number of customers with an ACV of at least $500,000 increased to 61 in 2024 from 54 in 2023, and those with an ACV of at least $1.0 million rose to 31 in 2024 from 27 in 2023[31]. - The company entered into an expanded three-year software agreement with Novartis in November 2024, enhancing access to its computational predictive modeling technology[55]. - The company has established distribution channels in important markets, including China, to support its software sales[227]. Drug Discovery and Development - Drug discovery revenue was $27.2 million in 2024, with significant contributions from collaboration agreements and equity positions in collaborators[41]. - The company has proprietary drug discovery programs focused on various therapeutic areas, including immunology and neurology, with a strategy to evaluate each program for potential advancement[89]. - The company has developed a computational platform that predicts molecular properties with high accuracy, combining physics-based methods and machine learning[46]. - The computational platform can evaluate billions of molecules per day, significantly outperforming traditional methods that evaluate approximately 1,000 molecules per year[50]. - The company launched an initiative in 2024 to expand its computational platform to predict toxicology risk, funded by $19.5 million in grants from the Bill & Melinda Gates Foundation[41]. Collaborations and Partnerships - The company is eligible to receive up to $2.272 billion in total milestone payments from Novartis, with $892.0 million in discovery and development milestones and $1.38 billion in commercial milestones[87]. - The collaboration with BMS includes a potential total of $482.0 million in milestone payments for the remaining neurology target, with $32.0 million already recognized[84]. - The collaboration with Lilly allows for up to $420.0 million in discovery, development, and commercial milestone payments[85]. - The company received an aggregate of $147.2 million in cash distributions related to the acquisition of Nimbus by Takeda in February 2023[78]. Clinical Trials and Regulatory Approvals - The FDA cleared the IND for the company's SGR-1505 in June 2022, and initial data from the ongoing Phase 1 clinical trial is expected in Q2 2025[35]. - The FDA granted Fast Track designation to SGR-2921 in July 2024, with initial data from its Phase 1 clinical trial anticipated in the second half of 2025[37]. - The Phase 1 clinical trial for SGR-1505 is designed to enroll up to 52 patients with relapsed or refractory B-cell malignancies, with initial data expected in Q2 2025[102]. - The Phase 1 clinical trial for SGR-2921 aims to enroll up to 144 patients with relapsed or refractory acute myeloid leukemia or high-risk myelodysplastic syndrome, with initial data anticipated in H2 2025[118]. - The FDA granted Fast Track designation to SGR-2921 for patients with relapsed or refractory acute myeloid leukemia in July 2024[121]. Intellectual Property and Licensing - As of January 24, 2025, the company owns or holds exclusive license rights to approximately 40 patents and patent applications, including 14 issued or allowed U.S. cases[219]. - The company has approximately 10 published patent families related to its proprietary drug discovery business, with over 100 compound patents and patent applications filed since 2010[220]. - The company actively seeks to protect its intellectual property through patents, copyrights, and trade secrets, although challenges remain in enforcement[226]. - The company has entered into multiple license agreements with Columbia University, establishing rights and obligations regarding patents and software used in its computational platform[189]. Competitive Landscape - The company faces intense competition in oncology, with multiple competitors in clinical development for its product candidates[165][167][168]. - The competitive landscape includes major pharmaceutical companies, specialty biopharmaceutical companies, and emerging startups, all vying for market share in drug discovery[163][170]. - The competitive factors affecting the success of the company's product candidates include efficacy, safety, tolerability, convenience, and price[164].

Revenue Performance - Total revenue for Q4 2024 increased by 19.1% to $88.3 million, compared to $74.1 million in Q4 2023[3] - Software revenue for Q4 2024 rose by 16.0% to $79.7 million, driven by increased hosted revenue from large customers[3] - Drug discovery revenue for Q4 2024 was $8.7 million, a 58% increase from $5.5 million in Q4 2023[3] - Full-year 2024 total revenue decreased by 4.2% to $207.5 million, while software revenue increased by 13.3% to $180.4 million[7] - Drug discovery revenue for the full year was $27.2 million, down 53% from $57.5 million in 2023[7] - Total revenues for the year ended December 31, 2024, were $207.539 million, a decrease of 4.9% compared to $216.666 million in 2023[35] - Software products and services revenue increased to $180.365 million in 2024, up 13.3% from $159.124 million in 2023[35] - Drug discovery revenue decreased significantly to $27.174 million in 2024, down 52.8% from $57.542 million in 2023[35] Profit and Loss - The company reported a net loss of $40.2 million for Q4 2024, compared to a net loss of $30.7 million in Q4 2023[6] - The company reported a net loss of $187.123 million for 2024, compared to a net income of $40.720 million in 2023[35] - Non-GAAP net loss for the year was $(191,394,000) in 2024, compared to $(157,755,000) in 2023[41] Expenses - Gross profit for 2024 was $132.083 million, a decrease from $140.692 million in 2023[35] - Research and development expenses rose to $201.785 million in 2024, an increase of 11% from $181.766 million in 2023[35] - The depreciation and amortization expense increased to $6,159,000 in 2024 from $5,552,000 in 2023[39] Customer Metrics - Schrödinger's total annual contract value (ACV) increased by 23.7% to $190.8 million in 2024[10] - The number of customers with an ACV of at least $5 million increased from four to eight[10] - Customer retention rate for customers with an annual contract value (ACV) of at least $100,000 is calculated based on the number of active customers from the previous fiscal year[26][27] - Active customers are defined as those with an ACV of at least $1,000, excluding low-cost software users[28] Cash Flow and Investments - Cash flows from operating activities resulted in a net cash used of $157,368,000 in 2024, an increase from $136,733,000 in 2023[39] - Net cash provided by investing activities was $148,836,000 in 2024, down from $193,034,000 in 2023[39] - The company issued common stock in an ATM offering, raising $8,868,000 in 2024[39] - The company reported a cash and cash equivalents balance of $162,657,000 at the end of 2024, slightly up from $161,066,000 at the end of 2023[39] Future Outlook - For 2025, software revenue is expected to grow by 10% to 15%, with drug discovery revenue projected between $45 million and $50 million[13] - Forward-looking statements indicate expectations for continued investment in research and growth in software licensing and drug discovery programs through 2025[31] Collaborations and Programs - Schrödinger ended 2024 with 13 ongoing programs eligible for royalties, up from 12 the previous year[11] - The company has tracked a cumulative number of collaborators for drug discovery since 2018, focusing on those collaborations that have generated revenue[30] Accounts Receivable - The company experienced a significant decrease in accounts receivable, net, amounting to $(169,700,000) in 2024, compared to $(10,039,000) in 2023[39] Equity Investments - The company recorded a gain on equity investments of $147,213,000 in 2023, which was not repeated in 2024[39]

Company Overview - Schrodinger, Inc. (SDGR) shares increased by 14.1% to $24.34 in the last trading session, with a higher-than-average trading volume [1] - The stock has gained 8.1% over the past four weeks [1] Strategic Updates - The price rise is attributed to investor optimism following the company's announcement of strategic priorities for 2025 and an update on its 2024 progress [2] - In 2024, Schrodinger achieved a multi-target research collaboration and license agreement with Novartis [2] Financial Expectations - The company is expected to report a quarterly loss of $0.25 per share, reflecting a year-over-year change of +21.9% [3] - Revenues are anticipated to be $84.93 million, which is a 14.6% increase from the same quarter last year [3] Earnings Estimates and Stock Performance - The consensus EPS estimate for the upcoming quarter has remained unchanged over the last 30 days [4] - A stock's price typically does not continue to rise without trends in earnings estimate revisions, indicating the need to monitor SDGR for potential future strength [4] - Schrodinger currently holds a Zacks Rank of 2 (Buy) [4] Industry Context - Schrodinger is part of the Zacks Medical Info Systems industry, which includes Fulgent Genetics, Inc. (FLGT) [4] - Fulgent Genetics has a consensus EPS estimate of -$0.12 for its upcoming report, representing a change of -142.9% from the previous year [5] - Fulgent Genetics currently holds a Zacks Rank of 3 (Hold) [5]

Financial Data and Key Metrics Changes - Total revenue for Q3 2024 was $35.3 million, a decrease of 17% compared to the prior year, primarily due to lower drug discovery revenue [34][44] - Software revenue was $31.9 million, reflecting a 10% increase year-over-year, driven by growth in hosted revenue [31][44] - Drug discovery revenue was $3.4 million in Q3, down from $13.7 million in the same quarter last year, attributed to fewer collaboration projects and lack of significant milestones [33][44] - Operating loss for Q3 was $68.4 million, compared to a loss of $56 million in Q3 2023 [41] Business Line Data and Key Metrics Changes - Software revenue growth for the first nine months of 2024 was 11%, consistent with expectations [44] - Hosted revenue increased to 28% of total software revenue, up from 23% in the same period last year [31] - Contribution revenue rose to $3.1 million, driven by initial revenue from the Gates Foundation for the predictive toxicology initiative [32] Market Data and Key Metrics Changes - The collaboration with Novartis includes an upfront payment of $150 million and potential milestone payments of up to $2.3 billion, along with royalties on sales [14][15] - The software agreement with Novartis is expected to significantly increase access to Schrödinger's technology, contributing to revenue in Q4 [49] Company Strategy and Development Direction - The company aims to accelerate growth in its software business and advance collaborative and proprietary drug discovery programs [7] - The partnership with Novartis reflects a strategy to leverage the expertise of partners to enhance the development of proprietary programs [21] - The company is focusing on expanding its presence in both oncology and non-oncology therapeutic areas, with plans to advance select non-oncology assets into clinical trials [90] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving the updated software revenue guidance, citing strong customer engagement and ongoing discussions with multiple companies [55] - The company anticipates modest drug discovery revenue contribution from the Novartis collaboration in 2024, with expectations for significant contributions in 2025 [48][50] - Management highlighted the importance of the predictive toxicology initiative and its potential to enhance drug discovery efforts [27] Other Important Information - R&D expenses for Q3 were $51 million, an increase from $47 million in the same period last year, driven by higher FTE-associated expenses [38] - Cash and marketable securities balance increased to $398 million at the end of Q3, up from $382 million at the end of Q2 [47] Q&A Session Summary Question: Can you expand on the key drivers for updated software guidance? - Management indicated that Q4 typically accounts for a large portion of annual revenue, and they are confident in closing necessary renewals to meet guidance [55] Question: Should the narrowed drug discovery guidance be viewed as a timing event? - Management confirmed that the reduction reflects uncertainty about timing, with confidence in opportunities for next year [58] Question: What is the percentage of software business that is cloud versus on-prem? - Management reported that 28% of total software revenue in Q3 was hosted, up from 23% the previous year [63] Question: Can you recap expectations for initial MALT1 data? - Management expects to report on safety, pharmacokinetics, pharmacodynamics, and early efficacy evidence in the first half of 2025 [67] Question: How is the company managing P&L with advanced clinical programs? - Management is focused on controlling expense growth while continuing to invest in proprietary molecules and platform [72] Question: What are the revenue recognition dynamics for hosted versus non-hosted contracts? - Hosted contracts are recognized ratably over the contract period, while on-prem contracts see substantial revenue recognized at contract initiation [96][97]

Company Performance - Schrodinger, Inc. reported a quarterly loss of $0.52 per share, which was worse than the Zacks Consensus Estimate of a loss of $0.40, representing an earnings surprise of -30% [1] - The company's revenues for the quarter ended September 2024 were $35.29 million, missing the Zacks Consensus Estimate by 13.85%, and down from $42.57 million a year ago [2] - Over the last four quarters, Schrodinger has surpassed consensus EPS estimates two times and topped consensus revenue estimates just once [2] Stock Movement and Outlook - Schrodinger shares have declined approximately 45.4% since the beginning of the year, contrasting with the S&P 500's gain of 25.8% [3] - The company's earnings outlook is mixed, with the current consensus EPS estimate for the coming quarter at -$0.26 on revenues of $88.58 million, and -$2.19 on revenues of $211.65 million for the current fiscal year [7] Industry Context - Schrodinger operates within the Zacks Medical Info Systems industry, which is currently ranked in the top 19% of over 250 Zacks industries, indicating a favorable industry outlook [8] - The performance of Schrodinger's stock may be influenced by the overall outlook for the industry, as research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by more than 2 to 1 [8]

Financial Performance - The company reported significant operating losses and expects to incur losses over the next several years[11]. - Total revenues for Q3 2024 were $35.29 million, a decrease of 17.3% compared to $42.57 million in Q3 2023[19]. - The net loss for Q3 2024 was $38.14 million, compared to a net loss of $62.02 million in Q3 2023, showing an improvement of 38.5%[22]. - Operating expenses for Q3 2024 totaled $86.15 million, up from $79.83 million in Q3 2023, reflecting a 7.9% increase[19]. - The company reported a gross profit of $17.73 million for Q3 2024, down from $23.64 million in Q3 2023, a decrease of 25.1%[19]. - Net loss for the nine months ended September 30, 2024, was $146.9 million compared to a net income of $71.4 million for the same period in 2023[26]. - Cash used in operating activities for the nine months ended September 30, 2024, was $126.3 million, an increase from $99.5 million in the same period of 2023[26]. - Total stockholders' equity as of September 30, 2024, was $449.4 million, down from $563.6 million at the end of September 2023[24]. - The company reported a fair value adjustment loss of $27.8 million for the nine months ended September 30, 2024[26]. - The company reported a consolidated net loss of $38,136 for the three months ended September 30, 2024, compared to a net loss of $62,024 in the same period of 2023[164]. Revenue Sources - A substantial portion of the company's revenue is generated from life sciences industry customers, making it vulnerable to industry-specific factors[11]. - The company’s software business derives revenue from five sources, including on-premise software license fees and hosted software subscription fees[55]. - Software products and services revenue increased to $31.88 million in Q3 2024 from $28.90 million in Q3 2023, representing an increase of 6.9%[19]. - Revenue from drug discovery services for the three months ended September 30, 2024, was $2,813, a decrease of 77.9% from $12,730 in the same period of 2023[69]. - The total software revenue for the nine months ended September 30, 2024, was $100,703, an increase of 11.5% from $90,469 in the same period of 2023[64]. - The Company recognized $1.1 million and $10.1 million in revenue associated with the collaboration agreement with Bristol-Myers Squibb for the three and nine months ended September 30, 2024, respectively, compared to $11.2 million and $40.0 million in the same periods of 2023[79]. Research and Development - The company is focused on expanding its proprietary drug discovery programs and plans to submit investigational new drug applications to the FDA[4]. - Research and development expenses increased to $50.98 million in Q3 2024, compared to $46.83 million in Q3 2023, an increase of 4.6%[19]. - Research and development expenses for the nine months ended September 30, 2024, were $12,512, up from $11,422 in 2023, indicating a year-over-year increase of 9.5%[123]. - The company has limited experience in clinical development, which may impact the success of its programs[11]. - The company relies on third parties for clinical trials, which may affect the timeline for seeking marketing approval[11]. Strategic Initiatives - The company aims to accelerate the growth of its software business and acquire new customers[4]. - The company is pursuing multiple business strategies and expects to expand its development and regulatory capabilities[13]. - The company emphasizes the importance of retaining key executives and attracting qualified personnel for future success[13]. - The company acknowledges the potential impact of geopolitical and global economic developments on its operations[5]. Cash and Assets - Cash and cash equivalents as of September 30, 2024, were $160.42 million, up from $155.32 million at the end of 2023[17]. - Total current assets decreased to $456.40 million as of September 30, 2024, down from $567.80 million at the end of 2023, a decline of 19.6%[17]. - Total liabilities decreased to $219.87 million as of September 30, 2024, down from $254.40 million at the end of 2023, a reduction of 13.5%[17]. - Cash and cash equivalents at the end of the period were $170.2 million, compared to $255.6 million at the end of September 2023[26]. - The company's total assets measured at fair value as of September 30, 2024, amounted to $457,027, with cash and cash equivalents at $170,176 and marketable securities at $228,263[95]. Stock and Compensation - The company has authorized 500,000,000 shares of common stock and 100,000,000 shares of limited common stock as of September 30, 2024[112]. - The company’s stock incentive plans include the 2010 Stock Plan, 2020 Equity Incentive Plan, 2021 Inducement Equity Incentive Plan, and 2022 Equity Incentive Plan[118]. - Total stock-based compensation for the nine months ended September 30, 2024, was $37.4 million, up from $35.3 million in the same period of 2023[26]. - Total stock-based compensation expense for the three months ended September 30, 2024, was $12,398, compared to $12,654 for the same period in 2023, reflecting a decrease of 2%[123]. - The intrinsic value of options exercised during the nine months ended September 30, 2024, was $1,534, compared to $7,099 for the same period in 2023, showing a decrease of 78%[139]. Collaborations and Agreements - The Company entered into a research collaboration and license agreement with Novartis, with an initial upfront fee of $150 million and potential total milestones of up to $2.272 billion[166]. - The collaboration with Novartis includes an initial upfront fee of $150.0 million and potential total milestones of up to $2.272 billion[185]. - The company is eligible to receive up to $482.0 million in total milestone payments from Bristol-Myers Squibb for ongoing collaborations[183]. - Contribution revenue from the Bill & Melinda Gates Foundation is recognized on a cost reimbursement basis for services in women's health[196].