Schrödinger, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Amounts below are in millions of U.S. dollars unless stated otherwise. The company operates software and drug discovery businesses, applying its computational platform to customer work and internal and collaborative drug programs.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Software revenue | $24.1 | $20.9 | $50.4 | $44.7 |
| Drug discovery revenue | $5.7 | $2.2 | $11.5 | $4.6 |
| Total revenue | $29.8 | $23.1 | $61.9 | $49.3 |
| Gross profit | $12.0 | $13.6 | $28.1 | $29.2 |
| Gross margin | 40.2% | 58.8% | 45.5% | 59.3% |
| Operating loss | $(30.3) | $(17.1) | $(54.3) | $(28.9) |
| Net loss attributable to common and limited common stockholders | $(34.6) | $(3.4) | $(34.7) | $(17.2) |
| Loss per share, basic and diluted | $(0.49) | $(0.05) | $(0.49) | $(0.33) |
- Software gross margin was 77% in Q2 and the first half, versus 82% in both comparable 2020 periods. Drug discovery segment gross profit was negative $6.4 million in Q2 and negative $10.7 million in the first half.
- First-half operating cash flow was negative $40.3 million, versus negative $14.8 million a year earlier. Investing activities used $47.1 million; financing activities provided $5.3 million. Cash, cash equivalents and restricted cash declined $82.1 million to $120.7 million; marketable securities were $495.9 million.
- At June 30, cash, cash equivalents, restricted cash and marketable securities totaled $616.6 million. Current assets were $649.8 million and current liabilities $70.4 million. Deferred revenue totaled $78.5 million. The filing reports no debt borrowings.
- Total assets were $717.3 million, total liabilities $111.6 million, and accumulated deficit $164.2 million at June 30. Stock-based compensation was $11.4 million for the first half.
Changes versus comparable periods
- Q2 revenue increased 29%; first-half revenue increased 26%. Software revenue grew 15% in Q2 and 13% in the first half. Drug discovery revenue rose sharply, largely reflecting the BMS collaboration and related research activity.
- Profitability weakened: Q2 gross profit fell 12%, while operating expenses rose 38% to $42.3 million. First-half operating expenses increased 42% to $82.4 million, led by higher research and development and general and administrative costs.
- Drug discovery costs increased as collaboration programs expanded, including higher CRO and personnel costs. Software costs also rose, and management attributed lower software margin partly to investment supporting larger platform deployments.
- Other income was volatile. A $19.9 million first-half gain from changes in fair value—primarily Morphic—helped offset operating losses; Q2 instead included a $4.9 million fair-value loss. The first half also included a $1.8 million realized loss on the sale of the Relay investment.
Outlook, risks and unusual items
- Management expects existing cash, cash equivalents and marketable securities to fund operations and capital expenditures for at least 12 months. It expects significant operating losses to continue and R&D, sales and marketing, and general and administrative expenses to increase. No specific revenue or earnings guidance is provided in the filing text.
- The BMS collaboration carries a $55 million upfront payment, recognized over research activities; $5.7 million was recognized in first-half 2021 and $48.4 million remained deferred at June 30. The company may receive up to $2.7 billion in milestones and tiered royalties, but timing and achievement are uncertain.
- After quarter-end, the company announced a Zai Lab oncology collaboration. Terms include an upfront payment, up to approximately $338 million in potential milestones, and royalties outside the United States; the filing does not provide the upfront payment amount.
- Significant commitments include a five-year cloud-computing agreement with a stated $60 million minimum payment obligation and a new New York headquarters lease running to 2038, with a 16-month rent-abatement period. These commitments were not included in the contractual-obligations table as described in the filing.
- The company reports no material legal proceedings and no material COVID-19 impact during the first half, but warns that the pandemic could affect customer demand and program timelines. Key risks include continued losses, reliance on software renewals and life-sciences customers, uncertain drug development and milestone receipts, competition, intellectual-property and cybersecurity exposure, and the volatility of equity-investment valuations.
- The company expects to cease qualifying as an emerging growth company on December 31, 2021, which it expects will increase compliance costs. Management stated disclosure controls were effective at the reasonable-assurance level.
Investor verification checklist
- Track software renewals, customer concentration, and whether revenue growth can support improving software margins.
- Monitor drug discovery spending, program progress, and the timing and probability of BMS and other collaboration milestones.
- Separate operating performance and cash burn from noncash fair-value gains or losses on equity investments.
- Reconcile liquidity and cash runway with the $60 million cloud commitment, new lease obligations, and planned operating-expense growth.
- Confirm the Zai Lab upfront payment, collaboration funding obligations, and subsequent milestones as details become available.
- Review the full risk-factor disclosures, particularly intellectual-property, data-security, customer-renewal, and collaborator-dependence risks.