Business Wire | Aug 10, 2020 06:00AM EDT

Schrdinger, Inc. Reports Second Quarter 2020 Financial Results and Business Updates

Aug. 10, 2020

NEW YORK--(BUSINESS WIRE)--Aug. 10, 2020--Schrdinger, Inc. (Nasdaq: SDGR), whose physics-based software platform enables discovery of high-quality, novel molecules for therapeutics and materials, today announced financial results for the second quarter ended June 30, 2020.

"We made excellent progress during the second quarter across our entire business, including growing our software business, advancing our drug discovery programs, and developing new platform capabilities," said Schrdinger CEO Ramy Farid, Ph.D. "We are excited about the opportunities across our business to continue transforming drug discovery and materials design for our customers, our collaborators, and for our own internal programs."

Second Quarter Financial Results

Revenue was $23.1 million for the second quarter of 2020, an increase of 21% compared to the second quarter of 2019.

Software revenue was $20.9 million for the second quarter of 2020, representing a 44% increase from the second quarter of 2019. Drug discovery revenue was $2.2 million for the second quarter of 2020, representing a 52% decrease from the second quarter of 2019.

Gross profit reached $13.6 million in the second quarter of 2020, an increase of 38% over the second quarter of 2019. Software gross margin in the second quarter of 2020 was 82%, compared to 75% in the second quarter of 2019.

Operating expenses for the second quarter of 2020 were $30.7 million, representing an increase of 29% from the second quarter of 2019.

Other income, which includes gains on equity investments and changes in fair value of such investments, was $13.1 million in the second quarter of 2020 versus $13.2 million in the second quarter of 2019.

Net loss, after adjusting for non-controlling interests, was $3.4 million, compared to a loss of $0.5 million in the second quarter of 2019.

Schrdinger ended the second quarter with cash, cash equivalents, restricted cash and marketable securities of $284.5 million, a decrease of $4.2 million from the end of the first quarter of 2020.

"We are executing on our strategy to drive growth in our software business and rapidly progress our drug discovery programs," said Schrdinger CFO Joel Lebowitz. "We continue to invest to advance the science underlying our platform and to progress our internal and collaborative drug discovery programs, which we believe will deliver long-term results."

Second Quarter Business Updates

Driving growth in software business

* $20.9 million in software revenue in the second quarter of 2020, representing 44% growth compared to the second quarter of 2019 * Growth in software revenue was driven by the addition of new customers, expanded adoption of our software solutions by existing customers, and growth in both life sciences and materials science

Creating value from biotech equity stakes

* Petra Pharma was acquired by a third party, resulting in a $4.6 million cash distribution to us, as well as the potential for future earnouts. We recognized a $4.2 million gain on the distribution * Appreciation of shares in Morphic Holding resulted in a non-cash gain of $10.3 million * Anticipated non-cash gain in the third quarter, which will be based on the market value of our 422,425 shares in Relay Therapeutics, which completed its IPO in July

Expanding platform reach

* Drug Discovery - Entered into two strategic partnerships to expand the availability of high-resolution structures of protein complexes, which will increase the number of targets available for structure-based drug design Viva Biotech - to access new x-ray crystal structures for high-value targets Thermo Fisher Scientific - to leverage the capabilities of the leader in cryo-EM to obtain structures of protein complexes that may not be amenable to x-ray crystallography * Materials Science - Entered into three-year agreement with Gates Ventures to develop and apply atomistic simulation methods to improve battery performance

Advancing collaborative and wholly-owned drug discovery programs

* 12 internal and collaboration programs in late-stage discovery, including three wholly-owned programs - MALT1, CDC7 and WEE1, targeting solid tumors and hematological malignancies * 237 billion compounds explored computationally during the first half of 2020 across collaborative and internal programs enabling several programs to advance from program initiation to lead optimization in just months, instead of potentially years

Advancing the underlying science

* Significant increase in the scale and accuracy of chemical space exploration to accelerate the identification of higher quality drug candidates * Improved methods for determination of cryo-EM structures of protein/ligand complexes helping to expand the reach of our technology * Improvements to the accuracy of binding affinity predictions from FEP+ through enhanced modeling of water molecules * New method for calculating absolute binding affinities using FEP+ to improve hit rates in virtual screening

"We are excited by the scientific advances and progress we have made on behalf of all our stakeholders," said Dr. Farid. "Our leading physics-based computational platform is transforming discovery programs for life sciences and materials science with higher quality, novel molecules, and more rapidly than traditional methods."

Business Impact of COVID-19 Pandemic

While we did not see material impacts to our business from the COVID-19 pandemic during the first half of 2020, we have identified certain market risks that, if they materialize, could affect the growth of our software business and the timing of our drug discovery revenues for at least the remainder of 2020. Some of our software customers may experience increasing budgetary pressures, which may cause them to delay or reduce purchases. In addition, our sales force has limited in-person interactions, and their ability to attend industry conferences and events that promote and expand knowledge of our company and platform has been hampered. Relative to our drug discovery programs, certain programs, particularly ones that are in clinical studies or preparing to enter clinical studies, could be delayed which could result in delays in achieving milestones and related revenue. While there remains uncertainty about the extent of the effect of the COVID-19 pandemic, we do not envision a long-term impact from the COVID-19 pandemic on our ability to execute on our long-term strategy.

Webcast and Conference Call Information

Schrdinger will host a conference call to discuss its second quarter financial results on Monday, August 10, 2020 at 8:30 AM Eastern Time. The conference call can be accessed live over the phone by dialing (833) 727-9520 (domestic) or +1 (830) 213-7697 (international) and refer to conference ID 9992538. The webcast can be accessed under "News & Events" in the investors section of Schrdinger's website, https://ir.schrodinger.com/news-and-events/event-calendar. The archived webcast will be available on Schrdinger's website following the event.

About Schrdinger

Schrdinger's industry-leading computational platform facilitates the research efforts of biopharmaceutical and industrial companies, academic institutions and government laboratories worldwide. Schrdinger also has wholly-owned and collaborative drug discovery programs in a broad range of therapeutic areas.

Schrdinger is deeply committed to investing in the science and talent that drive its computational platform. Schrdinger was founded in 1990, has over 400 employees and is engaged with customers and collaborators in more than 70 countries. To learn more visit www.schrodinger.com. Follow us on LinkedIn, https://www.linkedin.com/company/schr-dinger/, and Twitter, https://twitter.com/schrodinger.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 including, but not limited to those regarding our expectations about the speed and capacity of our computational platform, our plans to continue to invest in research and our strategic plans to accelerate the growth of our software business and advance our collaborative and internal drug discovery programs, our ability to improve and advance the science underlying our platform, including through these use of new technologies, our expectations regarding the increase in the fair value of our equity stake in Relay Therapeutics, our expectations related to the use of our cash, cash equivalents, and marketable securities as well as our expectations related to the COVID-19 pandemic's impact on our business. Statements including words such as "anticipate," "believe," "contemplate," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," "project," "should," "target," "will," "would" and statements in the future tense are forward-looking statements. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Actual results may differ materially from those described in these forward-looking statements and are subject to a variety of assumptions, uncertainties, risks and factors that are beyond our control, including the demand for our software solutions, our ability to further develop our computational platform, our reliance upon third-party providers of cloud-based infrastructure to host our software solutions, our reliance upon our third-party drug discovery collaborators, the ability to retain and hire key personnel and the direct and indirect impacts of the ongoing COVID-19 pandemic on our business and other risks detailed under the caption "Risk Factors" and elsewhere in our Securities and Exchange Commission filings and reports, including our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020 filed with the Securities and Exchange Commission on August 10, 2020, as well as future filings and reports by us. Any forward-looking statements contained in this press release speak only as of the date hereof. Except as required by law, we undertake no duty or obligation to update any forward-looking statements contained in this press release as a result of new information, future events, changes in expectations or otherwise

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except for share and per share amounts)



Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Revenues:

Softwareproducts and $ 20,900 $ 14,482 $ 44,712 $ 33,087 services

Drug discovery 2,192 4,528 4,554 6,664

Total revenues 23,092 19,010 49,266 39,751

Cost of revenues:

Softwareproducts and 3,862 3,671 7,863 6,804 services

Drug discovery 5,647 5,488 12,195 10,092

Total cost of 9,509 9,159 20,058 16,896 revenues

Gross profit 13,583 9,851 29,208 22,855

Operating expenses:

Research and 16,657 9,531 30,357 17,969 development

Sales and 4,362 5,343 9,151 10,436 marketing

General and 9,651 8,940 18,587 14,026 administrative

Totaloperating 30,670 23,814 58,095 42,431 expenses

Loss from (17,087 (13,963 ) (28,887 ) (19,576 )operations )

Other income:

Gain on equity 4,156 - 4,156 - investment

Change in fair 8,359 12,661 5,280 12,034 value

Interest 570 524 1,269 962 income

Total other 13,085 13,185 10,705 12,996 income

Loss before (4,002 ) (778 ) (18,182 ) (6,580 )income taxes

Income taxexpense 64 (51 ) 155 (5 )(benefit)

Net loss (4,066 ) (727 ) (18,337 ) (6,575 )

Net lossattributableto (716 ) (227 ) (1,161 ) (281 )noncontrollinginterest

Net lossattributableto Schr?dinger $ (3,350 ) $ (500 ) $ (17,176 ) $ (6,294 )common andlimited commonstockholders

Net loss pershareattributableto Schr?dingercommon and $ (0.05 ) $ (0.01 ) $ (0.33 ) $ (0.14 )limited commonstockholders,basic anddiluted:

Weightedaverage sharesused tocompute netloss per shareattributable 63,296,366 44,495,701 51,981,647 44,493,667 to Schr?dingercommon andlimited commonstockholders,basic anddiluted:

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except for share and per share amounts)



Assets June 30, December 2020 31, 2019

Current assets:

Cash and cash equivalents $ 110,380 $ 25,986

Restricted cash 500 500

Marketable securities 173,646 59,844

Accounts receivable, net of allowance for 13,849 18,676 doubtful accounts of $50 and $50

Unbilled and other receivables 3,345 7,062

Prepaid expenses 5,294 6,468

Total current assets 307,014 118,536

Property and equipment, net 5,837 6,268

Equity investments 22,680 15,366

Right of use assets 11,918 12,762

Other assets 2,102 2,338

Total assets $ 349,551 $ 155,270

Liabilities, Convertible Preferred Stock, and Stockholders' Equity (Deficit)

Current liabilities:

Accounts payable $ 5,523 $ 3,524

Accrued payroll, taxes, and benefits 5,757 7,034

Deferred revenue 23,138 25,054

Lease liabilities 5,839 5,584

Other accrued liabilities 2,791 3,824

Total current liabilities 43,048 45,020

Deferred revenue, long-term 1,979 2,205

Lease liabilities, long-term 7,777 8,888

Other liabilities, long-term 600 900

Total liabilities 53,404 57,013

Commitments and contingencies

Convertible preferred stock:

Series E convertible preferred stock, $0.01 parvalue. Authorized zero and 77,150,132 shares;zero and 73,795,777 shares issued and - 109,270 outstanding at June 30, 2020 and December 31,2019, respectively

Series D convertible preferred stock, $0.01 parvalue. Authorized zero and 39,540,611 shares;zero and 39,540,611 shares issued and - 22,000 outstanding at June 30, 2020 and December 31,2019, respectively

Series C convertible preferred stock, $0.01 parvalue. Authorized zero and 47,242,235 shares;zero and 47,242,235 shares issued and - 19,844 outstanding at June 30, 2020 and December 31,2019, respectively

Series B convertible preferred stock, $0.01 parvalue. Authorized zero and 29,468,101 shares;zero and 29,468,101 shares issued and - 9,840 outstanding at June 30, 2020 and December 31,2019, respectively

Series A convertible preferred stock, $0.01 parvalue. Authorized zero and 134,704,785 shares;zero and 134,704,785 shares issued and - 30,626 outstanding at June 30, 2020 and December 31,2019, respectively

Total convertible preferred stock - 191,580

Stockholders' equity (deficit):

Common stock, $0.01 par value. Authorized500,000,000 and 425,000,000 shares; 50,139,639and 6,121,821 shares issued and outstanding at 501 61 June 30, 2020 and December 31, 2019,respectively

Limited common stock, $0.01 par value.Authorized 100,000,000 and 146,199,885 shares;13,164,193 and zero shares issued and 132 - outstanding at June 30, 2020 and December 31,2019, respectively

Additional paid-in capital 417,032 11,655

Accumulated deficit (122,272 ) (105,096 )

Accumulated other comprehensive income 727 16

Total stockholders' equity (deficit) of Schr? 296,120 (93,364 )dinger stockholders

Noncontrolling interest 27 41

Total stockholders' equity (deficit) 296,147 (93,323 )

Total liabilities, convertible preferred stock, $ 349,551 $ 155,270 and stockholders' equity (deficit)

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)



Six Months Ended June 30,

2020 2019

Cash flows from operating activities:

Net loss $ (18,337 ) $ (6,575 )

Adjustments to reconcile net loss to net cash used in

operating activities:

Gain on equity investments (4,156 ) -

Noncash revenue from equity investments (169 ) (92 )

Fair value adjustments (5,280 ) (12,034 )

Depreciation 1,758 1,793

Stock-based compensation 4,504 1,051

Noncash research and development expenses 1,147 227

Noncash investment accretion (205 ) (212 )

Decrease (increase) in assets:

Accounts receivable, net 4,827 233

Unbilled and other receivables 4,126 1,044

Reduction in the carrying amount of right of use 2,622 1,551 assets

Prepaid expenses and other assets (447 ) 1,149

Increase (decrease) in liabilities:

Accounts payable 1,999 123

Accrued payroll, taxes, and benefits (1,277 ) (35 )

Deferred revenue (1,973 ) 1,779

Lease liabilities (2,634 ) (1,547 )

Other accrued liabilities (1,334 ) 2,682

Net cash used in operating activities (14,829 ) (8,863 )

Cash flows from investing activities:

Purchases of property and equipment (1,327 ) (1,393 )

Purchases of equity investments (2,869 ) -

Distribution from equity investment 4,582 -

Purchases of marketable securities (177,694 ) (65,504 )

Proceeds from sale and maturity of marketable 64,808 12,325 securities

Net cash used in investing activities (112,500 ) (54,572 )

Cash flows from financing activities:

Issuances of common stock upon initial public 211,491 - offering, net

Issuances of Series E preferred stock, net - 29,893

Issuances of common stock upon stock option 232 180 exercise

Contribution by noncontrolling interest - 100

Net cash provided by financing activities 211,723 30,173

Net increase (decrease) in cash and cash 84,394 (33,262 )equivalents and restricted cash

Cash and cash equivalents and restricted cash, 26,486 77,716 beginning of period

Cash and cash equivalents and restricted cash, end $ 110,880 $ 44,454 of period



Supplemental disclosure of cash flow and noncash information

Cash paid for income taxes $ 149 $ 43

Supplemental disclosure of non-cash investing and financing activities

Purchases of property and equipment - 26

Acquisitions of right of use assets in exchange 1,778 464 for lease obligations

Right of use assets recognized on adoption - 16,475

Reclass of deferred financing costs to additional 1,858 - paid in capital

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CONTACT: Investor Contact: Christina Tartaglia Stern IR, Inc. christina.tartaglia@sternir.com 212-362-1200