Financial Performance - Total revenue for Q2 fiscal 2025 was $54.8 million, a 16% increase year-over-year, driven by growth in both software and drug discovery segments [6][23][28] - Software revenue reached $40.5 million, up 15% year-over-year, supported by growth in hosted contracts and contributions from a Gates Foundation grant [3][28] - Drug discovery revenue was $14.2 million, reflecting a 19% year-over-year growth, attributed to the recognition of a $150 million upfront payment from Novartis [3][29] Profitability and Expenses - Software gross margin decreased to 68% from 80% in the same quarter of 2024, due to a shift in revenue mix and investments in predictive toxicology [4][30] - R&D expenses were $43.1 million, a decrease of over 15% from the prior year, driven by cost reductions and a shift in expenses to collaborations [5][31] - Total operating expenses were $79 million, down 6% year-over-year, primarily due to lower R&D spending [5][32] Net Loss and Cash Position - The net loss for Q2 fiscal 2025 was $43 million, or 59¢ per share, compared to a net loss of $54 million, or 74¢ per share, in Q2 fiscal 2024 [6][32] - The company had $462 million in cash and equivalents as of June 30, 2025, indicating a strong liquidity position [6][32] Guidance and Outlook - The company maintains its full-year guidance for software revenue growth of 10%-15% and drug discovery revenue expected to be between $45 million and $50 million [6][33] - Software revenue for Q3 fiscal 2025 is anticipated to be between $36 million and $40 million [7][33] Clinical Development and Pipeline - Initial Phase I results for SGR1505, a proprietary MALT1 inhibitor, showed a well-tolerated profile with promising signals in chronic lymphocytic leukemia and Waldenstrom's macroglobulinemia patients [7][36] - The company is exploring strategic opportunities for SGR1505 to advance its development through partnerships [8][38] - Additional Phase I data for SGR2921 and SGR3515 is expected to be reported in the fourth quarter of 2025 [8][39] Strategic Collaborations and Innovations - The company expanded partnerships with Eli Lilly, Novartis, Ajax Therapeutics, and the Novo Nordisk Foundation Centre, enhancing its collaborative portfolio [10][40] - A beta version of a predictive toxicology module was launched, generating excitement among users and collaborators [9][25] - The company reported a 100% retention rate with customers generating over half a million dollars in revenue [10][75]

Financial Data and Key Metrics Changes - Total revenue for Q1 2025 was $59.6 million, representing a 63% increase compared to Q1 2024 [13] - Software revenue was $48.8 million, reflecting a 46% growth year-over-year [14] - Drug discovery revenue increased to $10.7 million from $3.2 million in Q1 2024, driven by collaborations and upfront payments [16] Business Line Data and Key Metrics Changes - Software revenue growth was primarily due to larger customer renewals and expansions of existing contracts, with on-prem software increasing by 44% to $25.4 million and hosted revenue growing by 52% to $10.9 million [14] - Professional services revenue declined by 31% to $3.8 million as previous contracts were completed [15] - Drug discovery revenue growth was attributed to the recognition of upfront payments from Novartis and other collaborations [16] Market Data and Key Metrics Changes - The company noted that the small and emerging biotech segment is not growing, but growth is driven by large accounts, with no pushback on renewals from major customers [54] - The company has a small direct exposure to revenue from China, with less than 4% of software revenue coming from U.S. academic institutions and government organizations [23] Company Strategy and Development Direction - The company aims to accelerate the growth of its software business and advance its drug discovery programs, with a focus on predictive toxicology and reducing preclinical animal testing [7][9] - The company plans to release a beta version of its predictive toxicology solution to select customers later this year, with broader availability expected after testing [9] - The company maintains its full-year financial guidance, expecting software revenue growth of 10% to 15% and drug discovery revenue between $45 million and $50 million [25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the revenue outlook for 2025, despite potential macroeconomic challenges [7] - The company is optimistic about the FDA's goal to reduce animal testing, which aligns with its computational drug discovery technology [8][24] - Management highlighted a strong cash position and reduced operating expenses, indicating resilience against market volatility [12][20] Other Important Information - The company reported a net loss of $60 million for Q1 2025, compared to a net loss of $54.7 million in Q1 2024 [20] - Cash and marketable securities increased from $367 million at year-end 2024 to $512 million at the end of Q1 2025 [21] Q&A Session Summary Question: Expectations around the SGR1505 presentation - Management is excited to share initial data from the SGR1505 trial, focusing on safety, pharmacokinetics, and preliminary efficacy [39] Question: Financial guidance on cash burn - Management does not foresee a substantial increase in cash burn next year, maintaining optionality with ongoing programs [40] Question: Differentiation of predictive toxicology model - The company is developing highly accurate models that leverage physics and machine learning, differentiating its offering from other preclinical simulators [45] Question: Trends observed in customer dynamics - The company is not seeing pushback on renewals and is maintaining growth driven by large accounts, despite challenges in the small biotech segment [54] Question: Threats from AI-native companies - Management believes there is currently no evidence of a threat from AI-native companies, emphasizing the importance of their deep understanding of technology [56] Question: Customer sentiment and FDA guidance on animal testing - Customers are looking for impactful technology that improves molecule design success rates, and the company has solutions that contribute to reducing animal testing [63][67] Question: Appetite for business development and partnerships - The company is constantly in conversation with other companies regarding potential partnerships and is evaluating new programs for high potential [98]

Financial Data and Key Metrics Changes - Total revenue for Q1 2025 was $59.6 million, representing a 63% increase compared to Q1 2024 [12][19] - Software revenue was $48.8 million, up 46% year-over-year, driven by larger customer renewals and expansions [13][19] - Drug discovery revenue increased to $10.7 million from $3.2 million in Q1 2024, boosted by revenue recognition from the Novartis collaboration [14][19] - Operating expenses decreased to $82 million from $86 million in Q1 2024, primarily due to lower R&D expenses [18][19] - Net loss after taxes was $60 million, or $0.82 per share, compared to a net loss of $54.7 million, or $0.76 per share in Q1 2024 [19] Business Line Data and Key Metrics Changes - Software cost of revenue increased to $13.5 million from $8 million in Q1 2024, attributed to the Gates Predictive Tox initiative [15] - Professional services revenue declined by 31% to $3.8 million due to the completion of prior service contracts [14] - On-prem software revenue grew by 44% to $25.4 million, while hosted revenue increased by 52% to $10.9 million [13] Market Data and Key Metrics Changes - The company noted that its direct exposure to revenue from China is small, with low single-digit percentages of software revenue coming from Chinese entities [22] - The FDA's goal to reduce preclinical animal testing is seen as a positive development for the company's technology and offerings [6][23] Company Strategy and Development Direction - The company aims to accelerate the growth of its software business and advance its drug discovery programs [3][5] - Management is optimistic about the potential of its predictive toxicology initiative and plans to release a beta version to select customers later this year [8][9] - The company expects to maintain its full-year financial guidance, projecting software revenue growth of 10% to 15% and drug discovery revenue between $45 million and $50 million [24][25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's financial position and its ability to navigate the current macroeconomic challenges [11][12] - The company is not currently experiencing resistance to purchasing conversations, although it is monitoring potential regulatory impacts [21][22] - Management remains positive about the outlook for the year, anticipating strong performance driven by clinical data presentations and ongoing collaborations [25][26] Other Important Information - The company has advanced several programs into the clinic and partnered early-stage programs with companies like Novartis and Lilly [31][76] - The predictive toxicology initiative aims to scale existing solutions to hundreds of off-targets, enhancing the company's offerings [70] Q&A Session Summary Question: Expectations around the upcoming presentation of SGR1505 - Management is excited to share initial data from the dose escalation study, focusing on safety, pharmacokinetics, and initial signs of activity [40][41] Question: Financial guidance on cash burn and R&D investments - Management indicated that cash burn is not expected to increase significantly next year, maintaining optionality with ongoing programs [41] Question: Differentiation of the predictive toxicology model - The company is developing highly accurate models that leverage both physics and machine learning, which differentiates its offering from other preclinical simulators [47] Question: Trends observed in customer dynamics - Management noted that while small biotech segments are not growing, large accounts continue to drive growth without pushback on renewals [55] Question: Threats from AI-native companies - Management emphasized that there is currently no evidence of a threat and highlighted the importance of their deep understanding of the technology [59] Question: Customer expectations and FDA guidance on animal testing - Customers are looking for impact from the technology, and the predictive toxicology initiative is expected to significantly contribute to reducing animal testing [64][68]