Schrodinger Inc (SDGR) Q4 2024 Earnings Call Highlights: Strong Software Growth Amidst Revenue ...

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Thu, Feb 27, 2025, 12:24 AM 4 min read

Total Revenue (Q4 2024): $88.3 million, a 19% increase compared to Q4 2023.
Software Revenue (Q4 2024): $79.7 million, a 16% increase compared to Q4 2023.
Drug Discovery Revenue (Q4 2024): $8.7 million, compared to $5.5 million in Q4 2023.
Software Gross Margin (Q4 2024): 83%, compared to 87.4% in Q4 2023.
Total Revenue (Full-Year 2024): $208 million, compared to $217 million in 2023.
Software Revenue (Full-Year 2024): $180 million, a 13.3% increase from 2023.
Drug Discovery Revenue (Full-Year 2024): $27 million, compared to $58 million in 2023.
Overall Gross Margin (Full-Year 2024): 64%, compared to 65% in 2023.
Net Loss (Q4 2024): $40.2 million or $0.55 per diluted share, compared to a net loss of $31 million or $0.43 per diluted share in Q4 2023.
Cash and Marketable Securities (End of Q4 2024): $367 million, compared to $469 million at the end of Q4 2023.
Net Cash Used in Operating Activities (Full-Year 2024): $157 million, compared to $137 million in 2023.

Warning! GuruFocus has detected 5 Warning Signs with SDGR.

Release Date: February 26, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Schrodinger Inc (NASDAQ:SDGR) exceeded software revenue expectations in 2024, with a total software revenue of $180 million, representing a growth of over 13%.
The company established a new drug discovery collaboration and expanded a software agreement with Novartis, enhancing its collaborative and proprietary pipeline.
Schrodinger Inc (NASDAQ:SDGR) achieved a 100% software customer retention rate for customers with an annual contract value (ACV) of at least $500,000.
The company reported a significant increase in the number of software customers with an ACV greater than $5 million, doubling from 4 to 8.
Schrodinger Inc (NASDAQ:SDGR) is well-positioned for 2025 with plans to release several new products and solutions, including predictive toxicology technology and enhancements to biologics discovery technologies.

Negative Points

Total revenue for 2024 decreased to $208 million from $217 million in 2023, primarily due to a reduction in drug discovery revenue.
The overall gross margin declined from 77.6% in Q4 2023 to 72.6% in Q4 2024, driven by higher drug discovery expenses and increased software costs.
The company reported a net loss of $187 million for 2024, compared to a net income of $41 million in 2023, largely due to the absence of gains from previous years.
Operating expenses increased by 7.3% compared to 2023, with significant increases in R&D and sales and marketing expenses.
Schrodinger Inc (NASDAQ:SDGR) anticipates continued churn in its small and mid-cap customer segments, partly due to acquisitions of biotech software customers.

Q & A Highlights

Q: What is your assumption behind your 2025 drug discovery revenue guidance, and what proportion comes from the Novartis partnership? A: The increase in drug discovery revenue is broad-based, coming from multiple collaborations. The Novartis collaboration contributes significantly, but it's not the majority. Revenue from Novartis will be recognized over multiple years, with peak recognition expected in 18 to 24 months. Other collaborations, such as those with Lilly and Otsuka, also contribute to the revenue guidance.

Q: How is the seasonality of revenue expected to change, and will it become less Q4 weighted? A: The revenue distribution is expected to become less Q4 weighted over time, primarily due to the increase in hosted revenue, which provides a steady revenue stream throughout the year. However, Q2 and Q3 are still expected to be cyclically lower quarters. The Q1 guidance reflects deals closed in Q4, contributing to revenue in Q1.

Q: What factors influence customers to move from on-prem to hosted solutions, and how is this transition expected to progress? A: The transition from on-prem to hosted solutions is driven by the seamless delivery of licenses through hosted license servers. The transition is expected to continue at a steady pace, with a 5-7 percentage point increase in hosted revenue observed in 2024 compared to 2023. This trend is expected to continue as more customers recognize the benefits of hosted solutions.

Q: What are the key drivers of customer retention and how does feedback influence new product offerings? A: Customer retention is driven by the impact of Schrodinger's technology on projects, leading to improved molecule quality and faster development. The lack of viable alternatives also contributes to retention. Feedback from customers influences the development of new products and enhancements, such as predictive toxicology and biologics discovery technologies, which are well-received and contribute to customer stickiness.

Q: How does the predictive toxicology initiative impact revenue, and when is it expected to be released? A: The predictive toxicology initiative, funded by the Gates Foundation, will have most of its revenue recognized in 2025, with a total grant of $19.5 million. The initiative is expected to be released this year, with positive feedback from beta customers indicating its potential impact on drug discovery projects.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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