Schrodinger(SDGR)2024-11-12 15:51Financial Data and Key Metrics Changes - Total revenue for Q3 2024 was 31.9 million, reflecting a 10% increase year-over-year, driven by growth in hosted revenue [31][44] - Drug discovery revenue was 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 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 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 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]