Schrödinger, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless stated otherwise. Schrödinger sells computational software and provides drug discovery services through collaborations and internal programs. Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions where appropriate.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Software revenue | $33.1 million | $26.3 million | Up 26% |
| Drug discovery revenue | $15.6 million | $5.8 million | Up 169%; includes $4.0 million recognized under the BMS collaboration |
| Total revenue | $48.7 million | $32.1 million | Up 51% |
| Gross profit | $28.0 million | $16.2 million | Up 73%; consolidated gross margin was approximately 57.5%, versus 50.3% |
| Software gross margin | 77% | 78% | Lower due to platform deployment support and higher royalties |
| Operating expenses | $56.6 million | $40.1 million | Up 41%; R&D $27.8 million, sales and marketing $6.7 million, G&A $22.1 million |
| Loss from operations | $(28.6) million | $(23.9) million | Operating loss widened |
| Consolidated net loss | $(34.5) million | $(0.5) million | Q1 2021 included a $24.8 million fair-value gain; Q1 2022 had a $6.2 million fair-value loss |
| Net loss attributable to common and limited common stockholders | $(34.4) million; $(0.48) per share | $(0.03) million; approximately $(0.00) per share | Weighted-average shares were 71.1 million and 70.1 million, respectively |
| Cash used in operating activities | $(39.7) million | $(10.9) million | Higher cash use, including working-capital changes |
Cash, cash equivalents and marketable securities totaled approximately $525.5 million at March 31, 2022; including $3.5 million of restricted cash, the filing reports $529.0 million. Management said existing cash, cash equivalents and marketable securities should fund operating expenses and capital requirements for at least 24 months. The company reported no borrowing debt in the supplied balance sheet; lease liabilities were $81.5 million, including $4.2 million current. Contractual operating lease payments totaled $132.1 million before imputed interest. A cloud-provider agreement carries a $60 million minimum payment obligation over five years.
Material changes and notable items
- Revenue growth came from increased software sales to new and existing customers and higher drug discovery services revenue, driven by collaboration progress, research funding and milestone timing. One customer accounted for 15% of Q1 2022 revenue.
- Drug discovery segment gross profit improved to $2.4 million from a $4.3 million gross loss. Software gross profit was $25.6 million, up from $20.4 million.
- G&A expense rose 65%, including a one-time, nonrecurring state and local tax item of approximately $1.1 million. Stock-based compensation was $9.1 million, versus $4.4 million.
- Schrödinger acquired XTAL BioStructures on January 14, 2022, for approximately $7.4 million, including acquired cash; the acquisition added structural biology capabilities. XTAL’s reported Q1 revenue and net income were not material.
- Changes in investment fair value were a $6.2 million loss, primarily from Morphic; the comparable 2021 period included a $24.8 million gain, also from Morphic. Marketable securities had $2.0 million of unrealized losses in other comprehensive income.
- In April 2022, after quarter-end, the company agreed to receive approximately $11.8 million in cash in exchange for terminating potential earnout rights tied to a prior collaborator acquisition.
Outlook, risks and contingencies
Management expects R&D, sales and marketing, and G&A spending to increase as the company invests in its platform, software growth and drug programs. No specific financial guidance for revenue, profit or cash flow is stated in the supplied filing text. Management cautions that results may fluctuate, particularly because of software renewals and the timing of collaboration milestones and payments.
- The company expected to submit an IND application for its MALT1 program in the first half of 2022 and, subject to regulatory clearance, begin a Phase 1 trial in the second half of 2022. It planned IND submissions for CDC7 in early 2023 and WEE1 in 2023; a CDC7 Phase 1 trial was also planned for 2023, subject to clearance.
- COVID-19-related capacity constraints at contract research and manufacturing organizations delayed CDC7 preclinical work; the company was working to add substitute or supplemental capacity. Management reported no material overall business impact from COVID-19 in Q1, but further effects remain uncertain.
- Key risks include continuing operating losses, uncertain drug development and milestone receipts, customer renewals and concentration, competition, intellectual-property protection, cybersecurity, hiring and growth execution. Two customers represented 34% and 12% of accounts receivable at March 31, 2022.
- The company disclosed routine litigation may arise but said it was not currently subject to material legal proceedings. It reported no material changes in market risk and said disclosure controls were effective as of March 31, 2022.
Important facts for investors to verify
- Whether software revenue growth, renewals and gross margin persist, and how much future growth depends on large customers.
- Progress and timing of MALT1, CDC7 and WEE1 milestones, including the effects of CRO/CMO capacity constraints and regulatory review.
- Operating cash burn, spending plans and the assumptions behind management’s estimate of at least 24 months of liquidity.
- Timing and collectability of collaboration milestones, including the BMS agreement, and the potential variability of investment fair values.
- Lease and cloud-computing commitments, XTAL integration and the receipt and accounting treatment of the $11.8 million post-quarter earnout settlement.