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Schrodinger, Inc. (SDGR)·Q4 2024 Earnings Summary

Executive Summary

  • Total revenue increased 19.1% year over year to $88.3M in Q4, with software revenue up 16.0% to $79.7M and drug discovery revenue up to $8.7M on milestone recognition; non‑GAAP net loss improved to $(17.2)M and non‑GAAP EPS was $(0.24) while GAAP diluted EPS was $(0.55) .
  • Software gross margin fell to 83% (from 87%) due to higher costs tied to the predictive toxicology initiative; hosted software revenue rose 86% to $11.0M and accounted for 14% of software revenue, reflecting mix shift dynamics that should reduce Q4 seasonality over time .
  • 2025 outlook: software revenue growth of 10–15%; drug discovery revenue of $45–50M; software gross margin 74–75%; OpEx growth <5%; Q1 2025 software revenue $44–48M; cash use in operations expected to be significantly lower vs 2024 .
  • Strategic catalysts: expanded Lilly collaboration, Otsuka expansion, Novartis collaboration with $150M upfront received in January 2025; initial Phase 1 data expected on SGR‑1505 (2Q25), SGR‑2921 and SGR‑3515 (2H25) .

What Went Well and What Went Wrong

What Went Well

  • “We are delighted with Schrödinger’s excellent financial performance in 2024. Software revenue growth exceeded our expectations… and we expect to report initial clinical data from our three lead proprietary programs this year.” — CEO Ramy Farid .
  • Q4 software revenue +16% YoY to $79.7M, driven by higher hosted revenue and new multi‑year agreements; hosted revenue +86% to $11.0M, with strong growth in top‑30 global pharma accounts offsetting SMID-cap churn .
  • KPI strength: total ACV +23.7% YoY to $190.8M; Top‑10 ACV +43%; eight customers ≥$5M ACV (from four); retention 100% among ≥$500k ACV customers, showing scale adoption and stickiness .

What Went Wrong

  • Software gross margin down to 83% (from 87%) on lower profitability of predictive toxicology project; overall Q4 gross margin declined to 72.6% with higher drug discovery costs .
  • Other expense rose to $(18.5)M vs $(1.9)M in Q4’23, driven by mark‑to‑market losses on equity investments; GAAP net loss widened to $(40.2)M YoY and diluted EPS to $(0.55) .
  • Drug discovery cost of goods increased to $10.9M (vs $7.9M) and services revenue declined 23%, reflecting mix and project cadence; small/mid biotech segment continues to show churn from acquisitions and restructuring .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Total revenue ($M)$47.3 $35.3 $88.3
Software revenue ($M)$35.4 $31.9 $79.7
Drug discovery revenue ($M)$11.9 $3.4 $8.7
Software gross margin (%)80% 73% 83%
Operating expenses ($M)$84.1 $86.2 $84.8
Other income (expense) ($M)$(1.2) $30.2 $(18.5)
GAAP net (loss) income ($M)$(54.0) $(38.1) $(40.2)
GAAP diluted EPS ($)$(0.74) $(0.52) $(0.55)
Non‑GAAP net loss ($M)$(48.1) $(63.7) $(17.2)
Non‑GAAP EPS ($)$(0.66) $(0.87) $(0.24)
Overall gross margin (%)——72.6

Segment detail (Q4 2024 software):

Software Revenue ComponentsQ4 2024
On‑prem ($M)$55.4
Hosted ($M)$11.0
Maintenance ($M)$5.9
Contribution ($M)$4.9
Services (YoY)Down 23%
Hosted share of software (%)14%

FY 2024 KPIs:

KPIFY 2023FY 2024
Total ACV ($M)$154.2 $190.8
Top‑10 ACV ($M)$51.0 $73.1
Customers ≥$5M ACV (count)4 8
Customers ≥$1M ACV (count)27 31
Customers ≥$500k ACV (count)54 61
Retention ≥$500k ACV (%)98% 100%
Active customers ≥$1k ACV (count)1,785 1,752
Programs eligible for royalties (count)12 13
Collaborators since 2018 (count)17 19

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Software revenue growth (%)FY 2025N/A10%–15% New
Drug discovery revenue ($M)FY 2025N/A$45–$50 New
Software gross margin (%)FY 2025N/A74%–75% New
OpEx growth (%)FY 2025N/A<5% New
Cash used in operationsFY 2025 vs FY 2024N/ASignificantly lower New
Software revenue ($M)Q1 2025N/A$44–$48 New

Context on prior year guidance (for trajectory):

  • FY 2024 guidance (updated Q3): software growth 8%–13%; drug discovery $20–$30M; software GM slightly below 2023; OpEx growth 8%–10% .
  • Actual FY 2024: software revenue $180.4M (+13.3%); drug discovery revenue $27.2M; software GM 80% .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
Physics + AI/ML integrationLaunched predictive tox initiative; NVIDIA AI leveraged Continued platform advances; preclinical posters (SGR‑3515, PRMT5‑MTA) Further integrating physics and AI/ML into workflows; expanding to biologics/formulations Expanding scope and adoption
Predictive toxicologyInitiative launched; plan to expand off‑targets Initial grant revenue in Q3; reduces software GM >50 off‑targets enabled; lowers GM (74–75% FY25 guide); strong beta feedback Scaling; margin headwind
Hosted vs on‑prem mixQ3 expectation 32–34M software; hosted renewals rising Hosted at 28% of software; ratable recognition Hosted revenue +86% YoY to $11M; 14% of Q4 software; reduces Q4 weighting over time Shift to hosted continues
Seasonality—Q4 ~42–44% historically Expect less Q4 weighting as hosted grows, but Q2/Q3 remain cyclically lower Gradual normalization
Macro/tariffs/China——China exposure low single digits; NIH <1%; minimal risk from tariffs Limited macro exposure
Clinical pipeline milestonesExpect initial data in 2025 Reinforced 2025 disclosures SGR‑1505 (2Q25); SGR‑2921 & SGR‑3515 (2H25); SGR‑2921 received Orphan Drug Designation (AML) Multiple 2025 catalysts
Business development—Novartis $150M upfront; expanded Novartis software Expanded Lilly target; expanded Otsuka; Novartis payment received Jan’25 Portfolio expanding

Management Commentary

  • CEO: “We continue to see increasing momentum and conviction around our validated computational methods… well positioned to deliver across all facets of our business in 2025 and beyond.” — Ramy Farid .
  • CFO: Hosted contracts increase ratable revenue and should reduce Q4 concentration; software growth in 2025 driven by large customers; China remains <5% revenue .
  • President, R&D: Initial Phase 1 data on SGR‑1505 (dose escalation PK/PD, safety, preliminary activity) planned for 2Q25; SGR‑2921 and SGR‑3515 initial data in 2H25 .
  • Non‑GAAP treatment excludes equity investment mark‑to‑market and related tax effects to improve operating comparability .

Q&A Highlights

  • Drug discovery revenue guidance composition: Novartis upfront amortized over multiple years; 2025 increase broad‑based across collaborations (Lilly, Otsuka, BMS) .
  • Seasonality: hosted contracts will gradually reduce Q4 weighting; Q2/Q3 expected to be cyclically lower; Q1 software guided $44–48M with tail from Q4 deals .
  • Hosted transition: cadence of +5–7pp per year; most “hosted” refers to license server hosting, easing delivery; ratable recognition mechanics clarified vs on‑prem .
  • Predictive tox: strong beta feedback; release targeted for 2025; internally used already; margin headwind acknowledged .
  • MALT1 program: focus on monotherapy activity in dose escalation and PK/PD relationships; partnership discussions likely after interim data, with more data preferred for BD decisions .

Estimates Context

  • S&P Global consensus EPS and revenue estimates for Q4 2024 were unavailable at time of retrieval due to data limits. As a result, we cannot quantify beat/miss versus Wall Street consensus and recommend revisiting when SPGI access permits.

Key Takeaways for Investors

  • Mix shift toward hosted licenses is accelerating (+86% YoY in Q4) and should reduce Q4 revenue concentration, improve visibility, but introduces ratable recognition and near‑term margin pressure from predictive tox contribution revenue .
  • FY25 guide sets a constructive base: software +10–15%, drug discovery $45–50M, software GM 74–75%, OpEx growth <5%; Q1 software $44–48M anchors the year .
  • Strategic optionality: expanded Lilly and Otsuka programs plus Novartis collaboration ($150M upfront received Jan’25) broaden revenue drivers and support drug discovery growth cadence in late 2025 .
  • Clinical catalysts in 2025 (SGR‑1505 in 2Q25; SGR‑2921 and SGR‑3515 in 2H25) can reshape sentiment; watch for monotherapy signals and tolerability (Wee1/Myt1 intermittent dosing) .
  • Risks: gross margin compression from contribution projects; volatility in other income/expense from equity marks; continued churn in SMID biotech customer cohort; limited contribution from China near‑term .
  • Trading lens: near‑term narrative hinges on hosted adoption trajectory and margin guidance execution; medium‑term thesis depends on clinical readouts and collaboration revenue ramps (Novartis amortization) .