Schrodinger, Inc. Q3 FY2024 earnings call

• Announced a collaboration with Novartis: Schrödinger will receive $150 million upfront and up to $2.3 billion in milestones, plus royalties; Novartis also signed an expanded software agreement.
• Financial results: Total revenue $35.3M, software revenue $31.9M (+10% y-o-y), drug discovery revenue $3.4M (lower due to fewer projects).
• Proprietary pipeline: Three clinical stage programs (SGR-1505, SGR-2921, SGR-3515) advancing; expect initial data from all programs in 2025.
• Gates Foundation grant: Revenue shortfall in Q3 due to slower ramp of predictive tox initiative, expected to be recouped in remaining grant quarters.

Total revenue for the third quarter was $35.3 million. Software revenue was $31.9 million, accounting for 90.4% of total revenue, and increased by 10% compared to the same period a year ago. Drug discovery revenue was $3.4 million in Q3, significantly lower than Q3 last year due to fewer collaboration projects and no recurring milestones. Software revenue growth was driven by hosted revenue as existing customers transitioned to hosted licenses, with hosted revenue making up 28% of total software revenue in Q3, up from 23% in the same period last year.

• Software revenue guidance narrowed to 8%-13% growth (previously 6%-13%), with lower end increased.
• Drug discovery revenue guidance lowered to $20M-$30M from $30M-$35M, due to reduced probability of hitting milestones in 2024.
• Novartis collaboration's upfront revenue recognized over years; software contract contributes to Q4 revenue.

• Forward-looking statements subject to factors in SEC filings, including risk factors.
• Uncertainty in software contract terms/timing affecting revenue.
• Milestones for drug discovery dependent on project execution and timing.

Q: Expand on key drivers for updated software guidance.

A: Fourth quarter is large for software revenue; on track for renewals including Novartis, with discussions ongoing with multiple companies.

Q: Narrowed drug discovery guidance timing.

A: Uncertainty around end-year events, but confident in next year's opportunities as projects ramp up.

Q: Software hosted vs on-prem percentage.

A: 28% hosted in Q3, up from 23% last year; higher when focusing on contracts.

Q: Predictive toxicity platform availability.

A: Not widely available yet, but making progress on expanding targets.

Q: Prioritization of non-oncology programs.

A: Committed to oncology but also pursuing non-oncology programs into phase I, with clear value inflection points in phase I.