Schrödinger, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone Q4 filing; selected Q4 figures are included below. Amounts are in U.S. dollars.
Business context
Schrödinger sells physics-based molecular modeling software to life-sciences, industrial, academic, and government customers, and applies its platform to collaborative and wholly owned drug-discovery programs. Software remains the larger revenue stream. The company reported 1,463 active customers and 99% year-over-year retention among customers with annual contract value (ACV) above $100,000.
Financial and operating metrics
| Metric | FY2020 | FY2019 | Change / context |
|---|---|---|---|
| Total revenue | $108.1 million | $85.5 million | Up 26% |
| Software products and services revenue | $92.5 million | $66.7 million | Up 39% |
| Drug-discovery revenue | $15.6 million | $18.8 million | Down 17%, primarily reflecting milestone timing |
| Gross profit | $63.5 million | $49.1 million | Overall gross margin approximately 58.7%; software gross margin 81% versus 80% |
| Operating loss | $60.9 million | $38.7 million | Loss widened as operating expenses rose 42% |
| Net loss | $26.6 million | $25.7 million | Includes substantial noncash investment fair-value gains |
| Net loss attributable to Schrödinger stockholders | $24.5 million | $24.6 million | Basic and diluted loss per share: $0.41 versus $4.09; share counts are not comparable due to the 2020 IPO and capital changes |
| Net cash from operating activities | $16.8 million | Use of $26.1 million | FY2020 benefit included a $59.7 million increase in deferred revenue, substantially related to BMS |
| Cash, cash equivalents, restricted cash and marketable securities | $643.2 million | $86.3 million | At December 31; includes $440.4 million of marketable securities |
| Working capital | $609.8 million | $73.5 million | At December 31 |
| Total assets / total liabilities | $746.3 million / $122.2 million | $155.3 million / $57.0 million | Stockholders’ equity was $624.0 million at year-end 2020 |
Debt and liquidity: The filing does not report material borrowings or conventional debt. It reports lease liabilities of $11.8 million and operating lease obligations of $12.3 million. Management said existing cash, cash equivalents, and marketable securities were expected to fund operations and capital expenditures for at least 12 months.
Q4 2020: Revenue was $33.0 million versus $25.8 million in Q4 2019; software revenue was $25.0 million versus $17.5 million, while drug-discovery revenue was $8.1 million versus $8.3 million. Net loss was $11.6 million versus $7.1 million, and operating loss was $16.6 million versus $7.8 million.
Material changes versus the prior period
- Software growth was led by on-premise licenses, up 37%, and professional services, up 90%; the company cited customer expansion, new customers, and significant service projects.
- R&D expense increased 64% to $64.7 million, including higher personnel and CRO costs as internal programs expanded. General and administrative expense rose 55% to $41.9 million, partly reflecting public-company infrastructure and personnel costs. Sales and marketing expense declined 17% to $17.8 million.
- Operating loss widened, but net loss remained near the prior year because other income increased to $34.6 million, including a $28.3 million fair-value gain on equity investments and $4.1 million of realized gains.
- Operating cash flow improved to positive $16.8 million, materially supported by deferred revenue growth; it should not be read as evidence of recurring operating profitability.
- The company raised net proceeds of approximately $209.6 million in its February IPO and $325.6 million in its August follow-on offering. At year-end, accumulated deficit was $129.6 million.
Outlook, management commentary, and risks
- In November 2020, Schrödinger entered a worldwide collaboration with Bristol Myers Squibb (BMS), receiving $55.0 million upfront. It recognized approximately $1.0 million in 2020 and carried $54.0 million as deferred revenue. Potential future consideration includes up to $2.7 billion in milestones and tiered royalties; these amounts depend on research, development, regulatory, and commercial outcomes and are not assured.
- Management expected to submit up to three IND applications in 2022, with the first targeted for the first half of 2022, subject to favorable IND-enabling data. The company had not yet advanced its internal candidates into clinical development and cautioned that losses would continue for several years.
- Management expected R&D spending to increase as it advances internal programs and its computational platform. It also plans to expand software adoption and selectively pursue collaborations or out-licensing for internal programs.
- The company reported no material COVID-19 business impact in 2020 and did not expect a material impact in 2021, while noting possible customer budget pressure, sales restrictions, and program delays.
- Key risks include failure to sustain software growth or renewals; high competition; uncertain drug discovery and clinical outcomes; reliance on collaborators for milestones and commercialization; investment fair-value volatility; data security and confidentiality risks; and intellectual-property and licensing exposure.
- No material legal proceedings were reported. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation because of the company’s emerging-growth-company exemption.
Most important facts for investors to verify
- Whether software revenue growth, customer expansion, ACV, and retention remain strong, and how much growth comes from upfront on-premise licenses versus recurring hosted and maintenance revenue.
- Whether operating cash generation is repeatable apart from the BMS upfront payment and deferred-revenue timing; monitor cash use as R&D investment increases.
- Progress against the 2022 IND targets, and the quality and timing of IND-enabling results; these are early-stage programs with substantial development risk.
- Actual progress under the BMS agreement, including research obligations, target selection, milestones, termination provisions, and any eventual royalty prospects; headline milestone totals are contingent.
- Changes in fair value and liquidity of equity investments, including the January 2021 sale of Relay shares for $15.7 million, and the effect of such items on reported earnings.