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2fda0983357ecb7f4bbeaa34bb3d07377e3eeeb656c07d17116eaa0df20c6a89

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f65dbafc12901f9712d081ab653c1add80b164ee722334afc7389ca060362c0a

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28ec850f5132cf5d76e98d5007e6d603043c7cbb7230dbe48623e68c56f33c54

23794d91c53ae875c8e247d72561e35d9d06ee07c70c9e0dbcc977a6d161504a

Schrödinger, Inc. is a company that focuses on transforming the discovery of therapeutics and materials through its proprietary computational platform. The company develops and licenses a physics-based computational platform that accelerates the discovery of high-quality, novel molecules for drug development and materials applications. Schrödinger sells software solutions for molecular discovery and design, and engages in drug discovery collaborations and proprietary drug discovery programs.

1. **Software Products and Services** - Provides on-premise and hosted software, software maintenance, and professional services for molecular discovery and design, marketed to biopharmaceutical and industrial companies, academic institutions, and government laboratories globally.  **[0001490978-24-000089_sdgr-20240930.htm:35]** **[0001490978-24-000089_sdgr-20240930.htm:45]** **[0001490978-24-000046_sdgr-20240331.htm:37]** **[0001490978-24-000089_sdgr-20240930.htm:37]** 
   
2. **Drug Discovery** - Engages in collaborations with leading biopharmaceutical companies to advance drug discovery programs, generating revenue through milestone payments, option fees, and potential future royalties. The company also develops a pipeline of proprietary drug discovery programs, including its lead program SGR-1505, a MALT1 inhibitor for treating relapsed or refractory B-cell lymphomas.  **[0001490978-24-000089_sdgr-20240930.htm:35]** **[0001490978-24-000089_sdgr-20240930.htm:45]** **[0001490978-24-000046_sdgr-20240331.htm:37]** **[0001490978-24-000089_sdgr-20240930.htm:37]**

2c8ad71aeae95729c5f986e8b8c4b58f5010a227188ef9824c13c66a68dd14fd

1. **Confidence in Updated Guidance**  
   **Q:** What drives confidence in updated software guidance?  
   **A:** We're confident in meeting our narrowed guidance range  **[SDGR_3407895_6]** , with Q4 expected to contribute **42% to 44%** of annual revenue as in recent years.  **[SDGR_3407895_6]**  The Novartis deal is significant but not the only factor  **[SDGR_3407895_6]** ; we're in discussions with multiple other companies about renewals.  **[SDGR_3407895_6]** 

2. **Revenue Recognition Dynamics**  
   **Q:** How does revenue recognition differ between hosted and on-prem contracts?  
   **A:** Hosted contracts are recognized **ratably over the contract period**.  **[SDGR_3407895_16]**  For example, a 1-year $1 million hosted contract would recognize about **$250,000 per quarter**.  **[SDGR_3407895_16]**  On-prem contracts recognize a substantial portion upfront; up to **80% of revenue** may be recognized when the contract is signed.  **[SDGR_3407895_16]** 

3. **Reduced Drug Discovery Guidance**  
   **Q:** Is the narrowed drug discovery guidance due to timing?  
   **A:** Yes, the reduction reflects uncertainty about the timing of events around year-end.  **[SDGR_3407895_7]**  We're confident about next year, with opportunities anticipated to shift into Q1 and Q2.  **[SDGR_3407895_7]**  The Novartis deal also contributes to next year's outlook.  **[SDGR_3407895_7]** 

4. **P&L Management and Clinical Programs**  
   **Q:** How are you managing P&L with advanced clinical programs?  
   **A:** We're focused on reducing expense growth into the **single digits**  **[SDGR_3407895_10]**  and seeing operating leverage emerge.  **[SDGR_3407895_10]**  We don't intend to advance all molecules on our own  **[SDGR_3407895_10]** ; we're optimistic data next year will reveal opportunities.  **[SDGR_3407895_10]** 

5. **Milestone Recognition Timing**  
   **Q:** Will reduced probability of 2024 milestones affect future recognition?  
   **A:** While no future milestone is 100% certain  **[SDGR_3407895_15]** , we expect milestones to be recognized next year rather than this year.  **[SDGR_3407895_15]**  The timing of revenue from the Novartis collaboration will also impact next year's revenue.  **[SDGR_3407895_15]** 

6. **Cloud vs. On-Prem Adoption**  
   **Q:** What percentage of software business is cloud-based?  
   **A:** In Q3, **28%** of our total software was hosted, up from **23%** last year.  **[SDGR_3407895_8]**  Focusing on customer contracts, the percentage is likely in the **high 30% range**.  **[SDGR_3407895_8]**  The on-prem portion may increase due to the Novartis deal.  **[SDGR_3407895_8]** 

7. **New Customer Adds and Biotech Funding**  
   **Q:** How are new customer adds influenced by biotech funding cycles?  
   **A:** We're seeing interest from smaller companies and private, pre-IPO firms.  **[SDGR_3407895_8]**  However, it's premature to say they'll significantly contribute to software growth.  **[SDGR_3407895_8]**  We're excited about large and midsized companies not yet using our technology at scale.  **[SDGR_3407895_8]** 

8. **Non-Oncology Program Prioritization**  
   **Q:** Will you invest in clinical infrastructure for non-oncology programs?  
   **A:** Yes, we plan to pursue select non-oncology assets into Phase I studies.  **[SDGR_3407895_14]**  While committed to oncology, we've made significant progress in immunology and neuroscience programs.  **[SDGR_3407895_14]**  Some targets have clear early value inflection points.  **[SDGR_3407895_14]** 

9. **Expectations for MALT1 Data**  
   **Q:** What are your expectations for the upcoming MALT1 data?  
   **A:** We'll release data in H1 2025 from our Phase I dose escalation study.  **[SDGR_3407895_9]**  Focus is on safety, PK/PD, and early efficacy.  **[SDGR_3407895_9]**  Success is defined by evidence of monotherapy activity in relapsed/refractory B-cell malignancy patients.  **[SDGR_3407895_11]** 

10. **PRMT5 Program Differentiation**  
    **Q:** How does your PRMT5 program differentiate from others?  
    **A:** We're developing brain-penetrant compounds to target a broader set of tumors, including glioblastoma.  **[SDGR_3407895_12]**  We aim to maximize synergy between PRMT5 and MTA for deeper responses.  **[SDGR_3407895_12]**  It's early days, but we're excited about this important mechanism.  **[SDGR_3407895_12]** 

11. **Predictive Toxicity Platform Availability**  
    **Q:** Is the predictive toxicity platform available to customers?  
    **A:** Not widely yet.  **[SDGR_3407895_13]**  We're making good progress expanding targets in the virtual panel.  **[SDGR_3407895_13]**  We're using it extensively in collaborations and will engage with select customers for early access.  **[SDGR_3407895_13]** 

f457b04ceda3110ed947aee3ec64557a77226d25047a4b7bacdf741a674c80e5

Software

- On-premise Software

- Hosted Software

- Software Maintenance

- Professional Services

- Software Contribution

Drug Discovery

- Drug Discovery Services

- Drug Discovery Contribution

Total Revenue

94099db481ead827f84f1026fb3d711aee93435944011d61326d68343fcc351e

1. "Given the significant decrease in drug discovery revenue this quarter compared to the same period last year  **[SDGR_3407895_3]** , can you provide more clarity on the specific factors contributing to this decline and how you plan to address them going forward?"
2. "With the lower gross margin in the software segment this quarter, partly due to the initial revenue recognized in the Gates predictive tox collaboration  **[SDGR_3407895_3]** , how do you anticipate gross margins evolving in the coming quarters, especially considering the shift towards hosted contracts?"
3. "Can you elaborate on the potential risks associated with the timing of the milestones that led to the reduction in drug discovery revenue guidance for the year  **[SDGR_3407895_3]** , and how confident are you that these milestones will be achieved in the next fiscal year?"
4. "Operating expenses have increased compared to last year, primarily due to higher R&D expenses  **[SDGR_3407895_4]** , how do you plan to manage operating costs moving forward to achieve operating leverage, especially in light of the ongoing investments in your proprietary programs?"
5. "As the proportion of hosted contracts continues to grow in your software business  **[SDGR_3407895_8]** , how are you addressing potential customer concerns about data security and integration, and what impact might this shift have on your renewal rates and average contract values?"

217ae4e40153e67f421810aa0bf6c64c49a1c85e7d6989d103a4976303ec89fe

United States

APAC

EMEA

Europe

Japan

Rest of World

19ef2684e6fa80e232c76c8172f6edb49b3ecc390f6435e20ea19a69f98db517

Minimum Payment Obligation for Exclusive Drug Discovery Facility ($M)

Minimum Payment Obligation for Cloud Compute Power ($M)

Total Milestone Payments for Neurology Target under BMS Collaboration ($M)

030b6478c810c36585809450388e297c2b08210782c75c141fb91b485773e17b

### Q3 2024 Earnings Call
- **Issued Period**: Q3 2024
- **Guided Period**: FY 2024
- **Guidance**:
  1. **Software Revenue Growth**: Narrowed from **6% to 13%** to **8% to 13%**.  **[SDGR_3407895_5]** **[SDGR_3407895_6]** 
  2. **Drug Discovery Revenue**: Lowered to **$20 million to $30 million** from **$30 million to $35 million**.  **[SDGR_3407895_5]** **[SDGR_3407895_3]** 
  3. **Operating Expense Growth**: Expected to be significantly lower in 2024 than in 2025.  **[SDGR_3407895_5]** 

### Q2 2024 Earnings Call
- **Issued Period**: Q2 2024
- **Guided Period**: FY 2024
- **Guidance**:
  1. **Software Revenue**:
     - **Q3 2024**: Expected to be **$32 million to $34 million**.  **[SDGR_3395529_4]** 
     - **Full Year 2024**: Reiterated, but no specific number provided.  **[SDGR_3395529_2]** **[SDGR_3395529_1]** 
  2. **Drug Discovery Revenue**: **$30 million to $35 million**, weighted towards Q4.  **[SDGR_3395529_4]** 
  3. **Software Gross Margin**: Slightly lower than last year, similar to 2022 levels.  **[SDGR_3395529_4]** 
  4. **Operating Expense Growth**: **8% to 10%**, at the low end of the previous range.  **[SDGR_3395529_4]** 
  5. **Cash Use**: Expected to be greater than last year.  **[SDGR_3395529_4]** 
  6. **Clinical Data Readouts**: Phase 1 data readouts expected in 2025.  **[SDGR_3395529_6]** 
  7. **Impact of Gates Foundation Grant**: Modest negative effect on gross margins.  **[SDGR_3395529_4]** 

### Q1 2024 Earnings Call
- **Issued Period**: Q1 2024
- **Guided Period**: Q2 2024 and FY 2024
- **Guidance**:
  1. **Software Revenue Growth**: **6% to 13% year-over-year**.  **[SDGR_3381996_9]** 
  2. **Drug Discovery Revenue**: Variable quarter-to-quarter, no specific numeric guidance.  **[SDGR_3381996_2]** 
  3. **Total Revenue**: Confidence in achieving full-year growth, no specific number.  **[SDGR_3381996_2]** 
  4. **Software Revenue for Q2 2024**: **$31 million to $33 million**.  **[SDGR_3381996_3]** 
  5. **Operating Expenses**: Consistent trajectory, no specific number.  **[SDGR_3381996_3]** 
  6. **R&D Expenses**: Expected to increase at a slower rate.  **[SDGR_3381996_10]** 
  7. **Clinical Data Readouts**:
     - **SGR-1505**: Initial data in late 2024 or 2025.  **[SDGR_3381996_4]** 
     - **SGR-2921**: Initial data in late 2024 or 2025.  **[SDGR_3381996_4]** 
     - **SGR-3515**: Enrollment in Q3 2024, no specific data timeline.  **[SDGR_3381996_4]** 

### Q4 2023 Earnings Call
- **Issued Period**: Q4 2023
- **Guided Period**: FY 2024
- **Guidance**:
  1. **Drug Discovery Revenue**: **$30 million to $35 million**.  **[SDGR_3375630_6]** 
  2. **Software Revenue Growth**: **6% to 13%**.  **[SDGR_3375630_9]** **[SDGR_3375630_5]** 
  3. **Software Revenue for Q1 2024**: **$33 million to $35 million**.  **[SDGR_3375630_5]** 
  4. **Gross Margin**: Similar to 2023, with potential variance.  **[SDGR_3375630_6]** **[SDGR_3375630_4]** 
  5. **Operating Expense Growth**: **8% to 12%**, lower than 28% in 2023.  **[SDGR_3375630_6]** 
  6. **R&D Expense Growth**: Expected to moderate compared to 44% in 2023.  **[SDGR_3375630_4]** 
  7. **Operating Cash Burn**: Higher than in 2023, with reduction goal for 2025.  **[SDGR_3375630_6]** 
  8. **Capital Allocation**: Shift towards proprietary programs.  **[SDGR_3375630_6]** 
  9. **Customer Metrics**: Positive trends expected for accounts with ACV of at least **$500,000, $1 million, and $5 million**.  **[SDGR_3375630_5]** 

2327858bb649ef738ad2bf801d22b861329c479707e9f193c4980897634d6149

- **Clinical data readouts for key assets have been delayed to 2025**, which may impact the company's proprietary pipeline progress.  **[SDGR_3395529_11]**
- **High cash burn rate may deplete cash reserves within a year without additional capital**, necessitating partnerships or other financing options to fund operations.  **[SDGR_3395529_7]**
- **Growth in the software business is being hindered by a turbulent environment for emerging biotech companies**, affecting the company's smaller biotech customers and potentially impacting software revenue growth.  **[SDGR_3395529_8]**

d9c4a72503b9b2ab95239794c0bfe9d3f8bc56fe9cd542434fb7316876470c6f

- Schrödinger is advancing its proprietary drug discovery pipeline, with **three clinical-stage programs**, including **SGR-3515**, **SGR-1505**, and **SGR-2921**, with clinical data expected in late 2024 or 2025.  **[SDGR_3381996_17]** **[SDGR_3381996_6]** **[SDGR_3381996_18]**
- The company's **newly launched LiveDesign for Biologics** has received **incredibly positive feedback** and **significant interest**, indicating potential for future growth in a new market segment.  **[SDGR_3381996_11]**
- **Annual Contract Value (ACV) growth** is **significantly higher than revenue growth**, driven by strong customer commitments and multi-year deals, providing future revenue visibility.  **[SDGR_3381996_18]**

e254d2920843d3db34ee7ccc1068cb5da1aa3bd353e89061b96e4f0f5b5da407

- **Schrödinger has a "very high degree of confidence in the long-term growth potential" of its software business**, with opportunities to increase adoption among both large pharmaceutical companies and emerging biotechs, despite a current guidance of **6% to 13% year-over-year growth** for 2024.  **[SDGR_3375630_9]**
- **The company retains a leadership position in AI and computational drug discovery** due to its unique physics-based platform that generates high-quality training sets necessary for effective machine learning, stating that **"no efforts in the space are competitive with our physics-based approaches."**  **[SDGR_3375630_9]**
- **Significant revenue opportunities are anticipated from advancing proprietary programs**, with plans to partner several programs in the foreseeable future as they progress into clinical and preclinical development, making them "**worth more in partnering transactions.**"  **[SDGR_3375630_21]**

349fe8fa748b50fb6057fd15d82d5deb3bb3a002fc4cb51b4c721c04cf226fdf

- **Schrödinger has experienced non-renewals from small biotech companies, particularly in China, and does not expect these customers to return, which may impact future revenue growth.**  **[SDGR_3381996_16]** ,  **[SDGR_3381996_9]** ,  **[SDGR_3381996_8]**
- **The transition from multiyear on-premise contracts to annual or hosted contracts may cause variability in revenue recognition and potentially lower gross margins in the near term.**  **[SDGR_3381996_7]** ,  **[SDGR_3381996_6]**
- **Advancing internal clinical programs is increasing R&D expenses, and the company has not provided specific guidance on managing these impacts on the P&L, which could strain financials without guaranteed returns.**  **[SDGR_3381996_10]**

d38371dc918e6c644ba142f6284278927df423604e93ee46858e1e28c79caffe

- **Slower software revenue growth guidance for 2024:** The company has guided a **6% to 13% year-over-year growth** in software revenue for 2024, which is lower than the typical **15% growth** guided in past years. This lower guidance raises concerns, especially given the recent industry-wide AI momentum.  **[SDGR_3375630_9]**
- **Impact of financial challenges among smaller biotech customers:** Financial pressures and consolidation in the biotech industry have led to a decrease in software revenue from smaller customers. The renewal rate across the broad customer group decreased from **96% to 92%**, indicating customer churn. This has created a drag on growth in 2023 and is expected to persist in 2024.  **[SDGR_3375630_9]** **[SDGR_3375630_20]**
- **Uncertainty in forecasting drug discovery revenue:** The company highlighted challenges in predicting drug discovery revenue due to the unpredictable nature of milestones and partnership deals. This uncertainty may lead to unpredictable revenues and difficulty in forecasting the trajectory of this segment.  **[SDGR_3375630_21]**

7df9a101d9e9ef99604dd75dfd5794b7f090aaa41ac7d1e2f5093bfbd731c528

- **Schrödinger's new enterprise software, LiveDesign for Biologics, has received a "fantastic" reception and "the feedback is quite positive" from customers, indicating strong market demand and potential for revenue growth.**  **[SDGR_3395529_18]**
- **Clinical programs are progressing well, with enrollment "going well" in both advanced programs, initiation of dosing in a third program, and "we are very happy with the way things are going," which sets the stage for potential value creation from the proprietary pipeline.**  **[SDGR_3395529_11]**
- **Despite a turbulent environment for emerging biotech companies, Schrödinger is seeing "more new accounts than accounts that are not software customers" and "significantly more growth accounts than we are seeing reducing accounts," reflecting robust demand for its software offerings and fueling revenue growth.**  **[SDGR_3395529_8]**

492d2b5e89f8c8ac50d78374852f536ee926819cac7a60451687263db35cbd32

Schrodinger Inc (SDGR)

Financials