Q4 2024 Earnings Summary
- Strong and broad-based growth in drug discovery revenue expected in 2025, driven by collaborations with Novartis, Lilly, Otsuka, and others. Schrodinger is scaling up activities on multiple projects, contributing to increased revenue confidence.
- Positive progress and upcoming data readouts for clinical programs, especially the MALT1 inhibitor SGR-1505, with initial Phase I data to be presented in the second quarter. This could enhance valuation and open partnering opportunities.
- High customer retention and increased dependency on Schrodinger's software due to its significant impact on drug discovery projects, leading to improved molecule quality, faster development times, and sustained software revenue growth. Customers are becoming "very, very dependent" on the technology.
- Dependence on Late-Year Revenue and Uncertainty: Schrodinger's revenue guidance for 2025 relies on delivering significant revenue in the fourth quarter, which may carry uncertainty. Geoff Porges stated, "we have to deliver significant revenue in Q4... the confidence we have in that is based on several things." This reliance on late-year performance introduces risks to meeting annual revenue targets.
- Increased Competition in MALT1 Inhibitors: The company's MALT1 inhibitor program faces competition from larger pharmaceutical companies like J&J and AbbVie, who are also developing MALT1 inhibitors. Karen Akinsanya acknowledged the competitive landscape: "there are other companies entering this space... there is a lot of excitement... reflected in the number of companies that are pursuing this target." This may challenge Schrodinger's ability to differentiate its molecule and secure market share.
- Churn in Small Biotech Customer Segment: Schrodinger experiences churn in its small biotech customer segment due to acquisitions and companies focusing less on discovery. Geoff Porges noted, "some of them are so successful, they just keep being acquired... that's causing some churn... companies are restructuring... and naturally, that has an effect on their appetite for investing in discovery." This churn could limit growth opportunities in this segment.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +19% (Q4 2024: $88.32M vs. Q4 2023: $74.13M) | Total revenue grew by 19% driven by improved performance in both the software and drug discovery segments, with overall revenue rising from $74.13M to $88.32M; this indicates better customer uptake and portfolio diversification compared to the previous period. |
Software Segment | +16% (Q4 2024: $79.66M) | Software revenue increased by 16% largely as a result of a dramatic shift toward hosted software, which jumped 85% YoY (from $6.02M to $11.18M), offsetting any potential declines in traditional on-premise deals and underscoring a strategic move to a subscription-based model. |
Drug Discovery | +59% (Q4 2024: $8.66M vs. Q4 2023: $5.46M) | Drug discovery revenue surged by 59% from $5.46M to $8.66M, reflecting enhanced pipeline activity, improved milestone achievements, or more favorable collaboration terms compared to the prior period. |
EMEA Revenue | +228% (Q4 2024: $45.5M vs. Q4 2023: $13.9M) | EMEA revenue skyrocketed by 228%, increasing from $13.9M to $45.5M, which likely results from significant expansion in customer contracts and market penetration in the European, Middle Eastern, and African markets relative to the previous period. |
US Revenue | -34% (Q4 2024: $36.25M vs. Q4 2023: $54.53M) | US revenue declined by 34% from $54.53M to $36.25M, suggesting a shift in market dynamics such as slower on-premise renewals or fewer milestone recognitions in the US compared to the earlier period. |
APAC Revenue | -25% (Q4 2024: $6.31M vs. Q4 2023: $8.4M) | APAC revenue fell by 25% from $8.4M to $6.31M, indicating either market-specific slowdowns or delayed customer transitions in the region relative to the previous year. |
Net Income | -31% (Q4 2024 loss of $40.2M vs. Q4 2023 loss of $30.67M) | Net loss widened by 31% (from a loss of $30.67M to $40.2M) due to higher operating expenses and a shift in revenue mix, despite stronger software and drug discovery performance, highlighting operational pressures that were less evident in the prior period. |
EPS | Worsened from -$0.43 to -$2.57 per share | EPS deteriorated markedly as the increased net loss, compounded by a slightly higher share count, resulted in EPS falling from -$0.43 to -$2.57, underscoring the financial strain despite revenue growth, compared to the previous period. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Software Revenue Growth | FY 2025 | no prior guidance | 10% to 15% | no prior guidance |
Drug Discovery Revenue | FY 2025 | no prior guidance | $45 million to $50 million | no prior guidance |
Software Gross Margin | FY 2025 | no prior guidance | 74% to 75% | no prior guidance |
Operating Expenses | FY 2025 | no prior guidance | Expected to grow by less than 5% | no prior guidance |
Net Cash Used in Operating Activities | FY 2025 | no prior guidance | Expected to be lower than FY 2024 | no prior guidance |
Q1 2025 Software Revenue | Q1 2025 | no prior guidance | $44 million to $48 million | no prior guidance |
Q1 2025 Drug Discovery Revenue | Q1 2025 | no prior guidance | Expected to be weighted towards later quarters | no prior guidance |
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Revenue Guidance Drivers
Q: What drives bookings for your revenue guidance?
A: The revenue guidance is based on several factors, including underpenetration in the industry, new capabilities attracting both new and existing customers, and hosted contracts which provide more predictable revenue. We have 8 customers over $5 million in ACV, leaving significant opportunity with others below that level. Hosted contracts contribute to confidence in future revenue as they "put future revenue in the bank". -
MALT1 Program and Partnerships
Q: Will you evaluate partnerships for MALT1 after data release?
A: We are conducting an ongoing dose escalation trial for our MALT1 program. We plan to share interim data at a medical meeting in Q2. While we engage in discussions with potential partners, we will consider further partnerships as the study progresses and more data becomes available throughout the year. -
Customer Retention and Stickiness
Q: What drives customer retention and ACV growth?
A: Customers are experiencing significant impact from our technology, such as making fewer molecules to reach a development candidate and improving molecule quality. This impact leads to high retention as there are no viable alternatives to our technology. Ongoing advancements in the platform, like enhancements to biologics, predictive toxicology, and crystal structure prediction, further strengthen customer relationships. -
Increase in High-Value Customers
Q: What's behind the jump in top customers' ACV?
A: The inflection in value comes when customers spend $5 million or more, allowing them to use the technology at scale and explore vast chemical space. Internally, we use the technology at an even larger scale. Our partnerships with companies like Lilly and Novartis demonstrate the benefits of higher investment. -
Predictive Toxicology Revenue Recognition
Q: How should we model predictive toxicology revenues?
A: We recognized $6 million in revenue for the predictive toxicology initiative in 2024. The total grant is around $19.5 million, with most of the remaining revenue to be recognized in 2025, and a small portion continuing into 2026. -
Exposure to China and Tariffs
Q: Could U.S.-China disputes impact your revenue?
A: Our total revenue from China is in the low single digits percentage-wise. We expect this to recover soon and do not see significant risk from ongoing disputes. Additionally, our exposure to NIH is less than 1%, and total U.S. government exposure is also less than 1%. -
Transition to Hosted Solutions
Q: How is the shift from on-prem to hosted progressing?
A: We observed a 5 to 7 percentage point increase in software revenue from hosted contracts in 2024 compared to 2023. Hosting the license server allows for more seamless delivery of licenses. Customers transition due to the convenience and efficiency of hosted solutions. -
Small Pharma Adoption
Q: What will drive small pharma to adopt your software?
A: While some small companies use our software extensively, the segment experiences churn due to restructurings and focus shifts. Renewed capital investment in drug discovery by emerging biotech companies would bolster adoption. The current environment for such investment is tepid. -
Revenue Seasonality and Q4 Weighting
Q: Will revenue remain heavily weighted in Q4?
A: We believe the Q4 weighting will gradually decrease over time. Hosted revenue, which is recognized evenly throughout the year, contributes to more balanced distribution. However, Q2 and Q3 are still expected to be cyclically lower this year. -
Wee1/Myt1 Inhibitor Safety Focus
Q: What safety signals are crucial for 3515's Phase I trial?
A: We aim to understand the safety profile of our dual Wee1/Myt1 inhibitor, leveraging preclinical observations that intermittent dosing enhances efficacy. The focus is on maintaining efficacy while ensuring tolerability. Key tumor types of interest include platinum-resistant ovarian cancer and uterine serous carcinoma.