Schrodinger(US:SDGR)2021-05-10 16:00markdown PART I. FINANCIAL INFORMATION [Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) Schrödinger reported **$32.1 million** in total revenues for Q1 2021, a 23% year-over-year increase, achieving a near break-even net loss of **$0.5 million** due to a **$24.8 million** gain on equity investments, while maintaining **$649.0 million** in liquidity [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2021, total assets were **$744.2 million**, slightly down from year-end 2020, driven by a shift from cash to marketable securities, while total liabilities decreased and stockholders' equity increased to **$631.8 million** Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Current Assets** | | | | Cash and cash equivalents | $133,122 | $202,296 | | Marketable securities | $515,372 | $440,395 | | Total current assets | $675,238 | $682,978 | | **Total Assets** | **$744,189** | **$746,263** | | **Current Liabilities** | | | | Deferred revenue | $40,759 | $45,403 | | Total current liabilities | $67,621 | $73,205 | | **Total Liabilities** | **$112,413** | **$122,244** | | **Total Stockholders' Equity** | **$631,776** | **$624,019** | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Total revenues increased 23% to **$32.1 million** in Q1 2021, primarily from drug discovery and software growth, but a widened operating loss of **$23.9 million** was largely offset by a **$24.8 million** gain on investments, resulting in a net loss of **$0.5 million** Condensed Consolidated Statements of Operations (in thousands) | Account | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | **Total revenues** | **$32,127** | **$26,174** | | Software products and services | $26,340 | $23,812 | | Drug discovery | $5,787 | $2,362 | | **Gross profit** | **$16,164** | **$15,625** | | Research and development | $21,448 | $13,700 | | Total operating expenses | $40,076 | $27,425 | | **Loss from operations** | **$(23,912)** | **$(11,800)** | | Change in fair value | $24,824 | $(3,079) | | **Net loss** | **$(523)** | **$(14,271)** | | Net loss per share | $0.00 | $(0.34) | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities increased to **$10.9 million** in Q1 2021, with **$61.9 million** used in investing activities for marketable securities, while financing activities provided **$3.7 million**, significantly less than the prior year's IPO-driven inflow Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(10,921) | $(5,778) | | Net cash used in investing activities | $(61,909) | $(87,913) | | Net cash provided by financing activities | $3,656 | $212,454 | | **Net (decrease) increase in cash** | **$(69,174)** | **$118,763** | | Cash, beginning of period | $202,796 | $26,486 | | Cash, end of period | $133,622 | $145,249 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail revenue recognition from the **$55 million** BMS collaboration, segment performance showing **$20.4 million** software gross profit and **$4.3 million** drug discovery gross loss, and significant post-quarter office lease expansions - The company entered into a collaboration and license agreement with Bristol-Myers Squibb (BMS) in November 2020, receiving a **$55 million** upfront payment. For the three months ended March 31, 2021, the company recognized **$2.4 million** in revenue associated with this agreement[77](index=77&type=chunk)[85](index=85&type=chunk) Segment Gross Profit (in thousands) | Segment | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Software | $20,434 | $19,811 | | Drug discovery | $(4,270) | $(4,186) | | **Total segment gross profit** | **$16,164** | **$15,625** | - In January 2021, the company sold its equity stake in Relay Therapeutics for **$15.7 million**, resulting in a loss of **$1.8 million**[143](index=143&type=chunk) - Subsequent to the quarter end, the company entered into a major new office lease in New York for approximately 108,849 square feet and expanded its Portland, Oregon office lease by 8,537 square feet[152](index=152&type=chunk)[154](index=154&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes Q1 2021 revenue growth to software and drug discovery, noting an increased operating loss of **$23.9 million** due to R&D investments, largely offset by an equity investment gain, with **$649.0 million** in liquidity deemed sufficient for the next 12 months [Results of Operations](index=30&type=section&id=Results%20of%20Operations) Total revenue increased **$6.0 million** (23%) in Q1 2021, driven by drug discovery and software growth, while operating expenses rose 46% due to R&D and G&A, with a **$24.8 million** gain on the Morphic investment significantly reducing the net loss Revenue by Source (in thousands) | Revenue Source | Q1 2021 | Q1 2020 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | On-premise software | $17,355 | $15,600 | $1,755 | 11% | | Hosted software | $2,600 | $2,133 | $467 | 22% | | Software maintenance | $4,105 | $3,537 | $568 | 16% | | Professional services | $2,280 | $2,542 | $(262) | -10% | | **Total software** | **$26,340** | **$23,812** | **$2,528** | **11%** | | **Drug discovery** | **$5,787** | **$2,362** | **$3,425** | **145%** | | **Total revenues** | **$32,127** | **$26,174** | **$5,953** | **23%** | - The increase in drug discovery revenue was primarily due to collaboration services for BMS which began in November 2020, as well as the timing and amount of other collaboration milestones and research funding[200](index=200&type=chunk) - R&D expenses increased by **57% YoY**, mainly due to a **$4.1 million** increase in personnel-related expenses and a **$3.3 million** increase in CRO costs for internal drug discovery programs[205](index=205&type=chunk) - The change in fair value was a **$24.8 million** gain in Q1 2021, primarily from the company's investment in Morphic, compared to a **$3.1 million** loss in Q1 2020[210](index=210&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2021, the company held **$649.0 million** in cash and marketable securities, bolstered by **$209.6 million** from its IPO and **$325.6 million** from a follow-on offering, which management deems sufficient for at least the next 12 months - As of March 31, 2021, the company had cash, cash equivalents, restricted cash, and marketable securities of **$649.0 million**[219](index=219&type=chunk) - The company raised net proceeds of **$209.6 million** from its IPO in February 2020 and **$325.6 million** from a follow-on offering in August 2020[217](index=217&type=chunk) - Management believes existing cash will be sufficient to fund operations and capital expenditures for at least the next 12 months[227](index=227&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports no material changes in its market risks or risk management policies since its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 - There have been no material changes in the company's reported market risks or risk management policies since the filing of its Annual Report on Form 10-K for the fiscal year ended December 31, 2020[239](index=239&type=chunk) [Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that as of March 31, 2021, the company's disclosure controls and procedures were effective at the reasonable assurance level[241](index=241&type=chunk) - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[242](index=242&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently subject to any material legal proceedings - The company is not currently subject to any material legal proceedings[245](index=245&type=chunk) [Risk Factors](index=38&type=page&id=Item%201A.%20Risk%20Factors) The company faces financial risks from historical and expected operating losses, business risks related to software renewals and competition, uncertainties in drug discovery returns, and operational risks including COVID-19 impacts, IP infringement, and personnel retention - **Financial Risks:** The company has a history of significant operating losses (**$129.6M** accumulated deficit as of March 31, 2021) and expects to incur losses for the next several years. Quarterly results may fluctuate significantly[247](index=247&type=chunk)[254](index=254&type=chunk) - **Business Risks:** A significant portion of software revenue depends on customer renewals. The company faces competition from established commercial competitors and academic consortia. Its drug discovery efforts may not result in commercially viable products[266](index=266&type=chunk)[273](index=273&type=chunk)[297](index=297&type=chunk) - **Intellectual Property Risks:** The company relies on license agreements, particularly with Columbia University, and failure to comply could lead to loss of important IP rights. It also faces risks of patent litigation and protecting its trade secrets[340](index=340&type=chunk)[341](index=341&type=chunk)[367](index=367&type=chunk) - **Operational & Personnel Risks:** The COVID-19 pandemic could negatively affect business operations and delay drug discovery programs. The company's success depends on retaining key executives and attracting qualified scientific and technical personnel[316](index=316&type=chunk)[395](index=395&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=69&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities during the period, and no material change in the planned use of **$209.6 million** net proceeds from the February 2020 IPO - The company received net proceeds of **$209.6 million** from its IPO on February 10, 2020[433](index=433&type=chunk) - There has been no material change in the planned use of proceeds from the IPO as described in the final prospectus[434](index=434&type=chunk) [Exhibits](index=71&type=section&id=Item%206.%20Exhibits) The filing includes required certifications from the Principal Executive Officer and Principal Financial Officer, along with XBRL data files - Exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906[439](index=439&type=chunk) - XBRL Instance Document and related taxonomy files were also included as exhibits[439](index=439&type=chunk)