Schrödinger, Inc. Q3 FY2025 earnings call

• Strong Q3 performance with total revenue up 54% year-over-year.
• Software revenue grew 28% year-over-year, driven by higher revenue from hosted contracts, on-premise renewals, and contribution revenue from the grant related to the predictive toxicology initiative.
• Drug discovery revenue increased due to successful execution across the expanded portfolio of collaborations.
• Pipeline updates: Work ongoing to complete the Phase I package for SGR-1505 and the Phase I dose escalation study for SGR-3515.
• Expense management: $30 million expense reduction achieved in May, with operating expenses down 14% compared to Q3 2024.
• Software update released in 2025-4 with enhancements for challenging modalities like bifunctional degraders, and the predictive toxicology solution beta ongoing.

Total revenue for the third quarter was $54.3 million, a 54% increase from Q3 2024. Software revenue was $40.9 million, representing a 28% year-over-year growth, which accounts for 75.3% of the total revenue. Drug discovery revenue was $13.5 million, a significant increase from Q3 2024, making up 24.7% of the total revenue.

• Software revenue growth guidance revised to 8% to 13% from 10% to 15% due to timing of pharma scale-up opportunities.
• Drug discovery revenue guidance increased to $49 million to $52 million.
• Software gross margin expected to be 73% to 75% versus prior expectation of 74% to 75%.
• Operating expenses are expected to be lower than 2024, with cash used in operating activities significantly lower than 2024.

• Macroeconomic pressures impacting the pharma industry, causing delays in pharma scale-up opportunities.
• Biotech sector challenges, including companies going out of business, affecting new customer acquisition.
• Uncertainty in the timing of clinical data readouts from trials and the commercialization timeline of the predictive toxicology solution.

Q: Implications of the guidance regarding reduced spend year-over-year and trimming of OpEx?

A: A $30 million expense reduction was achieved in May, with more than half realized, and further actions from clinical intentions are expected to improve profitability.

Q: Do you guys think of formal profitability either in GAAP or cash terms as a meaningful milestone to pursue?

A: Profitability is a meaningful milestone, and actions are being taken towards achieving it.

Q: What's changed regarding the software guidance slowdown?

A: The slowdown is due to pharma discussions delay resulting from industry factors, but there are early signs of biotech recovery.

Q: How is the customer response to the predictive toxicology and when can we expect monetization?

A: There is significant interest, but it's still in beta with early discussions ongoing; monetization timing is early and not yet specified.

Q: Does the decision to not advance discovery into the clinic mean partnering pre-clinic?

A: Yes, focusing on discovery partnerships to generate value, with successful past collaborations like the Novartis partnership.

Q: Progress on the Novartis partnership?

A: Excellent progress with teams working well together, contributing to revenue.

Q: Details on SGR-1505 ASH disclosures?

A: Update on aggressive patients with a complete response and genomic profiling of resistant mutations.

Q: Reason for phasing out clinical development?

A: Focus on sustainability and value creation through discovery partnerships, with milestones and royalties from programs continuing even without in-house clinical development.