Q4 2020 Schrodinger Inc Earnings Call

Thank you for standing by and welcome to showed and this conference call for the fourth quarter and full year, 2020 financial results.

Yeah.

My name is Sarah and I'll be your conference operator today.

After the Speakers' presentation, there'll be a question and answer session.

To ask a question, though on the session you will need to press Star then one of your telephone.

Please be advised that today's conference is being recorded at the company's request.

Now I'd like to introduce your host for today's conference Ms. Jerry Madden Senior Vice President of Investor Relations and communications.

Please go ahead.

Thank you and good morning, everyone and welcome to today's call during which we will provide an update on the company and review, our fourth quarter and full year, 2020 financial results.

Earlier. This morning, we issued a press release summarizing our financial results and progress and across the company, which is available on our website at www Dot Schrodinger dotcom here.

Here with me on our call today, as Rami, <unk>, President and Chief Executive Officer, Karen and Sanya Executive Vice President and Chief Biomedical scientist and head of discovery, R&D, and Joe Lebel Executive Vice President and Chief Financial Officer.

Following our remarks, we'll open up the call for Q&A I'd.

I'd like to remind you that during today's call management will make statements related to our business that are forward looking and are made pursuant to the safe Harbor provisions on the private Securities Litigation Reform Act of 1995, including without limitation statements related to our future financial performance, including our outlook for the full year 2021.

Potential advantages of our platform, our strategic plans to accelerate the growth of our software business and advance our collaborative and internal drug discovery programs risks related to the COVID-19 pandemic, our expectations related to the use of our cash cash equivalents and marketable securities and as well as our future operating expenses.

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 and the forward looking statements and are subject to a variety of assumptions uncertainties and risks and factors that are beyond our control, including the demand for our software solutions are.

Our ability to develop our computational platform our reliance upon drug discovery collaborators and other risks detailed under the caption risk factors and elsewhere and our most recent securities and Exchange Commission filings and reports ex.

As required by law, we undertake no duty or obligation to update any forward looking statements discussed on this call as a result of new information future events changes and expectations or otherwise.

These forward looking statements should not be relied upon as representing our views as of any date subsequent to today. During this call. We will also discuss certain financial and operating metrics, which are further described in our financial results press release, and SEC filings with that I'd like to turn the call over to Rami.

Thanks, Sharon and thank you everyone for joining us this morning, and Schrodinger, we have developed world class computational platform that is accelerating drug discovery and materials design I predict and key molecular properties with very high accuracy, we license our software to Biopharma and industrial companies worldwide and we are also leveraging our platform to <unk>.

And so pipeline of collaborative and internal drug discovery programs with the aim of bringing new medicines to patients.

We are extremely pleased with our execution across our business in 2020 total revenue was $108 1 million or 26% increase over the prior year as you'll hear from Karan. Shortly we also made excellent progress on our discovery pipeline and expect to initiate IND, enabling studies later this year from multiple programs we all.

And so achieved important milestones on several of our collaborative programs with three moving into the clinic and 2020.

Additionally, we entered into a strategic collaboration with Bristol Myers Squibb to discover develop and commercialize therapeutics in multiple disease areas. The agreement provided 55 million to Schrodinger upfront and we are eligible to receive up to $2 7 billion and preclinical development regulatory and commercial milestones and addition to <unk>.

Royalties on net sales of each product commercialized by Bristol Myers Squibb.

We are very pleased to be working with BMS, a proven leader and the areas of oncology and immunology turning to our software business. We saw very strong revenue growth in 2020 software revenue was $92 5 million or 39% increase over 2019, and we expect continued growth. This year, we continued to receive excellent feedback on.

And customers on the impact our platform is having on their discovery programs from both Biopharma and materials companies. We are also continuing to advance the science underlying our platform, we extended FEP plus to more accurately model binding affinities of Matala protein inhibitors and important class of inhibitors better support Macrocycle designed and on.

And <unk> and more accurately predict binding selectivity, which is a major way of reducing potential toxicity of drug molecules.

We also released a new active learning workflow for structure based hit discovery, which can screen massive libraries of compounds with greatly improved computational efficiency.

We plan to continue to invest heavily and the underlying science of our platform with a focus on increasing accuracy of the predictions and expanding the domain of applicable and <unk> to a wider range of targets.

As you'll hear shortly from Joel we ended 2020, and a strong financial position with cash resources of $643 million and addition to the continued investment and our computational platform, we are investing and our internal discovery programs to key value inflection points, we are adding new talent to support our R&D initiatives and we are.

Recently hired our first head of early development.

Our large number of drug discovery collaborations will continue to play a strategically important role for us as well.

We believe having a mix of partnered and wholly owned programs provides us with the flexibility to create long term value for our shareholders. We're excited by the many advances we've made and we expect continued progress across all aspects of our business, our internal pipeline, our collaborative and partner programs and our software business to support both drug discovery.

And materials design, we continue to navigate the challenges of COVID-19, and working remotely and we're extremely appreciative of the dedication and resilience of our employees and Schrodinger I'll now turn the call over to Karen for an update on our drug discovery programs. Thank you Rami and good morning, everyone.

In 2020, we continued to make important advances on many fronts across our internal pipeline and portfolio of collaborative programs.

Throughout 2020, we reported a significant increase and the number of collaborative programs and lead optimization.

By the end of 'twenty 'twenty several of these programs and entered preclinical development of phase one we expect additional collaborative programs currently at the lead optimization stage to advance during 2021.

We have made significant progress on our internal oncology programs targeting solid tumors and Hematological malignancies.

As Rami mentioned last year, we entered into a strategic collaboration with Bristol Myers Squibb for the discovery of small molecule compounds directed to five biological targets and oncology neurology and immunology.

We are pleased that two of our internal programs if to our friend sauce. One K Ras are part of this collaboration.

I'll focus the rest of my remarks on our three wholly owned programs moat. One C. D C seven and we won.

Based on the strong data we've generated to date, we plan to move forward with IMD, enabling studies for these programs.

Subject to completion of the preclinical data packages, we expect to submit up to three I N D applications in 2020 two with the first submissions expected in the first half of next year.

Starting with moat, one we have made significant progress and the last year more one is a protein that is downstream of B T K and the Nf Kappa B signaling pathway.

Constant activation of Nf Kappa B is a hallmark of several subtypes of lymphoma, we seized that inhibiting won't one could be and effective therapeutic strategy to treat certain relapsed or resistant b cell lymphomas or chronic lymphocytic leukemia.

In December we presented preclinical data from this program at the American Society for Hematology annual meeting.

Our compounds showed potent in vitro inhibition of Multan enzymatic activity, we also reported and vivo antitumor activity and mouse xenograft models of diffuse large b cell lymphoma, a very difficult to treat blood cancer. Additionally, and in vivo models, our moat one inhibitors demonstrate.

Straight dose dependent anti proliferative effects in combination with Ibrutinib and Vanessa clocks, which are approved B T K and Bcl two inhibitors, respectively. Now I'll turn to see D. C. Seven and we won two programs that target cancer through replication stress and DNA damage repair mechanisms.

C. D. C. Seven is a protein kinase that has been shown to be required and DNA replication initiation and.

C. D. Seven is thought to be linked to cancer cells proliferative capacity and ability to bypass normal DNA damage response is.

Targeting proteins that play important roles and DNA replication and replication stress is gaining momentum as a new therapeutic approach for cancer without program. We believe we have an opportunity to develop a best in class inhibitor by improving on key properties, including binding affinity selectivity and the.

Pharmacokinetic profile, we expect to report preclinical data from our C. D C. Seven program in the first half of this year.

We want and there's a tyrosine kinase regulator and the G. Two M cell cycle checkpoint and is a well validated biological target.

The therapeutic objective of targeting we want is to reduce cell viability by and juicing G to N things' arrest and apoptosis of cancer cells.

And as have shown clinically meaningful tumor regression in uterine serous carcinoma.

<unk> and small cell carcinoma through we won inhibition. However, existing inhibitors have profiles that may make dosing and combination therapy more challenging.

We have identified tight binding highly selective molecule with optimized drug like properties, including no observable and activation of sit three for a key liver enzyme.

And as these programs advance and transition into development, we expect to initiate new programs. We have prioritized several new program opportunities with human genetics support and imaging pharmacology data and oncology and immunology, we expect to launch. These programs later this year.

In summary, our diverse portfolio of collaborative and internal programs is rapidly advancing towards the clinic activities to support expansion of our pipeline into additional disease areas are well underway. It has been extremely gratifying to realize the power of our computational platform as we advance our own pipeline.

I look forward to updating you on our R&D activities throughout the year I will now turn the call over to Joe to review our financial results. Thank you Karen and Hello, everyone. This morning, I'm pleased to discuss our 2020 financial results and I'll also provide our outlook for 2020 one.

I'll start with a review of the fourth quarter total revenue was $33 million up 28% compared to the fourth quarter of 2019.

Software revenue was $25 million, representing 42% growth compared to the fourth quarter of 2019.

As was the case throughout the year the growth and software revenue was primarily driven by increased adoption of our solutions by large customers as well as the addition of new customers during the quarter.

Drug discovery revenue was $8 1 million compared to $8 3 million and the fourth quarter of 2019 revenue. This quarter included $1 million from our collaboration with Bristol Myers Squibb announced on November. The agreement included a $55 million upfront cash payment 54 million of which is reflected in deferred revenue and is expected to be.

We recognize over the next three to four years as we progressed the BMS programs to development candidates.

Operating expense was 35 and $6 million compared to $23 4 million and the fourth quarter of 2019, reflecting our investment and R&D to advance the science underlying our platform and to progress our internal drug discovery programs as well as costs required to support our public company infrastructure.

We recorded a net loss after adjusting for non controlling interests of 11.1 million compared to a loss of $6.8 million and the fourth quarter of 2019.

For the full year total revenue was $108 1 million a 26% increase over 2019 saw.

Software revenue was $92 5 million up 39% versus 2019 with strong growth and both life Sciences and material science.

Discovery revenue was $15 6 million compared to $18 8.002 million 19 and.

And as we stated before discovery revenue fluctuates from period to period as it is dependent on the timing of project milestones. Additionally, discovery revenue was impacted by the timing and revenue recognition of certain transactions such as the BMS agreement as I mentioned earlier 54 million related to the upfront payment from BMS and November was reflected in deferred.

Revenue at year end.

As a result total deferred revenue was 86.6 million versus $27 3 million at the end of 2019.

Of this total deferred revenue related to software was $30 2 million up 22% versus the end of 2019 also contributing to the overall growth full.

Full year operating expense was 124.4 million versus 87.8 million and 2019, reflecting our increased investment and R&D and increases and G&A to support our operations as a public company and 2020. We recorded other income of $34.6 million compared to $12 7.002 million 19, driven pre.

Merely by the increased market value of our equity holdings and morph it can really.

These results demonstrate the value creation opportunity of our collaboration strategy.

Net loss after adjusting for non controlling interests was 24.5 million compared to a loss of $24.6 million and 2019.

We ended 2020 with cash equivalents marketable securities and restricted cash balances of $643 2 million up from $599 5 million at the end of the third quarter of 2020, primarily due to the $55 million upfront payment from BMS.

For the full year operating activities generated $16 8 million and net cash versus using $26 1 million and net cash in 2019.

In addition to the financial results. We just reviewed I'd like to report on some key software performance indicators for 2020 total software annual contract value or a C V reached $92.1 million and 2020, representing annual growth of 22%, which is an increase from the 18% annual growth rate we saw in 2019.

The number of customers with a C V of more than $1 million increased to 16 up from 10 and 2019.

Customers with and a C V over 100000 increased to 153 compared to 131 and 2019. This customer cohort represented 79% of our total HCV in 2020 and our retention and this customer segment was 99%.

Finally, the number of total active customers was 1000 and 463 compared to 1266 and 2019.

We are pleased with the performance across our business and as we look ahead to this year. We are focused on executing on our strategy and generating long term growth at this time I will provide our revenue expectations for 2020. One we expect total annual revenue to be and the range of $124 million to $142 million, which includes soft.

Our revenue of $102 million to $110 million and discovery revenue of $22 million to $32 million with regard to software. We are excited about the momentum we've established and the opportunity for growth ahead in 2020, we saw a large increase and the number of customers spending over $1 million per year, which helped drive our strong revenue growth we continue to.

Work with our customers to demonstrate the benefits of deploying our solutions and an even greater scale and we believe there is opportunity for ongoing significant growth over time.

Due to the increasing size of the individual contracts and the timeframes associated with larger scale deployments. We anticipate this growth will vary from quarter to quarter and even year to year for 'twenty 'twenty. One specifically, we expect that software growth will be higher and the second half of the year, then and the first half due to some of these same factors with respect to drug discovery.

Revenue there are a few elements that impact our guidance. The first is revenue recognition related to the BMS transaction and.

And I've mentioned, we received 55 million and the fourth quarter of 2020 of which 54 million was reflected in deferred revenue. We anticipate this revenue will be recognized over the next three to four years as we advance the programs to development candidates the.

The second element that impacts our guidance is our strategy to progress our lead internal programs into the clinic ourselves.

As a result, we do not currently anticipate licensing revenue in 2020 one related to these programs.

And finally as we've previously indicated a portion of discovery revenue was driven by the timing of collaboration programs achieving certain milestones and can therefore vary from period to period finally, I'd like to comment on how we expect operating expense and software gross margin to trend for the year.

And we anticipate that operating expense growth will be higher than the 42% annual growth rate, we saw in 2020 driven by our commitment to fund R&D to advance our technology and our internal drug discovery pipeline.

We also anticipate that software gross margin will be lower than the 81% reported in 2020, reflecting investment to drive and support large scale adoption by our customers. We are very pleased with the results. We've achieved over the past year and we are excited about the opportunities that lie ahead to advance our strategy and drive long term growth across our business I will now.

Turn the call back over to Ron Thanks, Joel 'twenty 'twenty, one has the potential to be another strong year for Schrodinger, we anticipate continued growth and our software business and progress with our collaborative and partnered programs and we are building our internal discovery capabilities to support. The addition of new programs in 2020, one and I and D submissions for our most advanced.

<unk> programs in 2020 two.

We have an exceptional team committed to transforming the way therapeutics and materials are discovered and we look forward to providing updates on our progress throughout the year at this time, we'd be happy to take your questions operator.

Thank you as a reminder to ask a question you will need to press Star then one on your telephone to withdraw your question. Please press the pound key.

Our first question comes from the line of Michael Yee with Jefferies. Your line is now open.

Hey, guys. Thanks for.

A question on.

I have two and I think it would be very helpful. Because I think investors are quite confused and I'm sure you can see where the stock is trading number one on 2020 one guidance and.

Can you clarify your software guidance, one or two one and 102 hundred 10, I think it implies like I don't know 13, and 14% year over year growth. Yet you just came off a whopping 40% show or are you putting some conservatism in there I know Joe make some comments about second half better than first.

So just help us out with that a little bit.

You had a great 2020 and show people I think on what why are we dropped to 14%. So you talk about that a lot and tell me. If there is conservatism in there and then.

Secondly, a.

Can you talk about the drug discovery portion and I think you made some comments about that.

And I think some of that.

Our lower than consensus revenue is due to amortization of milestones and things of that nature. She can talk to dose two different lines that would be great.

Great Joe.

Sure. Thanks, Mike.

So you know in 2020, we're obviously really happy with the progress that we made.

And the fact that it's underpinned by larger contracts and the addition of new customers and a really challenging environment.

One impact of contracts getting larger and what we're talking about contracts that are now multi millions.

Dollars is that there's also the potential for more revenue growth variability from quarter to quarter and.

Year to year as well.

And.

But you know what we see going forward is that we're really very excited about the continuing opportunity for for growth and both sides of our business both life science and material science. So if you look at that.

What what what drove the business and 'twenty 'twenty, one and the increase in.

Annual contract value or a C V from.

And 18% growth rate in 2019% to 22% growth rate and 2020.

Is you know it's the same things that we've been talking about all year continuing increase in large scale adoption by our customers and the addition of new new new customers.

You know we know the scale at which we are deploying.

Our solutions on our own internal programs to great impact and it's still.

Quite a bit larger than even our largest customers and on the addition of new customer side.

And we are.

Still we believe and the early phases for instance of our growth cycle on the materials business. So we really see significant growth opportunity over and over the long term.

And on and both those areas and we're investing to capitalize on that but you will see variability and revenue as our contracts get larger.

You know and that is driven by the timing the debt.

Kind of contract that it is and other factors. So you.

You know our guidance is.

You know, we're providing guidance to kind of help you understand our 'twenty 'twenty, one but our.

Expectations over the longer term are for continued significant growth.

Joe you want to emphasize also the.

The second part of my question about the Vms revenue recognized and thank you for reminding me about debt. Yes. Thank you so on the drug discovery side and the fourth quarter.

As you know, we received $55 million and cash from BMS and late in the year. It was in November so.

We were we recognized $1 million from that $55 million and revenue 54 million of it went into deferred revenue.

We will recognize a much larger amounts are related to that in 2020 one.

As we.

Work on the programs on our progress towards delivering development candidates and.

And that 54 million will be recognized.

Recognized over the next three to four years as we do that.

And so you.

That.

And may explain the GAAP.

GAAP that you were talking about.

Okay. Thank you.

Thank you.

Our next question comes from the line of do Kim with BMO capital markets. Your line is now open.

Hi, good morning, Thanks for taking my questions.

I wanted to ask about the drug discovery revenue guidance portion.

And of your guidance and.

What besides the BMS upfront payment are you expecting.

To drive that guidance.

The collaboration programs that you have ongoing where there any discontinuation or delays that play a part and that guidance and did.

Did you did you say that you're not expecting a partnership for and internal program. This year.

Sure I can answer that question, so with regard to 2021 discovery guidance.

As I mentioned, obviously BMS revenue will be recognized and continue to be recognized in 2020, one and obviously to a higher degree than it was and the fourth quarter of 2020.

But we do expect to continue to earn milestone and research funding milestone and research funding revenue in 2020 one related to our collaborations.

I will say that.

Net.

You know with regard to.

And receiving those you know they the programs are advancing broadly.

Karen has talked about this I think most recently you saw great Great news release from Morphic on morph over five seven and that we worked on earlier this week.

And in addition to the milestones you need to also.

Incidentally, the increase and equity value that we have been deriving from these collaborations so.

Last year, we saw a significant contribution in terms of other income from our equity stakes and relay.

Morphic as well as the cash distribution from Petra and you know so.

And so far this year that has been continuing so.

With regard to our internal programs, what I was referring to there is that our three lead programs.

As we've talked about our malt one and CDC seven and we won we are intending to take into the clinic ourselves and so at least towards the clinic and and into the clinic.

And therefore, we're not planning at this point.

We're not guiding to any licensing revenue.

Related to those programs in 2020, one as we continue to advance those ourselves.

With regard to possible other transactions.

Transactions that may or may not occur this year, we're not guiding to that right now ex you know, we're not including that in our and our guidance.

Okay got it and then.

And additionally on the internal programs, you're expecting your first I and D filing and the first half of 'twenty one.

Is that a delay to your prior expectations and if so what's driving that.

Karen do you want to address that.

Hi, Doug.

No that does not represent a delay them.

I think in the past explained.

And that's limited faster.

Faster than we expected and in the case of Melbourne.

And with just around the Chilean market.

And by the time, the initiate G. L. P tell us it will be about two years actually.

And we started the programs that they're on it delays.

Delayed at this point.

All of our programs the data packages and looking good and we're pretty confident about the opportunity to initiate that fester GOP Tox study and the first half and face yeah and as Joel said.

So the opportunity for the additional programs.

Over the coming years Wow.

And from from the sounds of it comment it seems that moat one.

<unk> will be your first R&D.

And based on all the information we have right now we did present data at Ash and.

I think he's had an opportunity to see that.

Discussed.

Package really does look very supportive and.

We are on track as we discussed two.

While that first.

A J O P Coke and the first half of this year and we expect.

Ting to initiate clinical trials and the first half of next year.

Great. Thanks for taking my questions.

Thank you. Our next question comes from the line of Michael Raskin with Bank of America. Your line is now open.

Hey, Thanks for taking the question guys.

Hello, Belabor, a point, but I want to go back to the software guide a little bit.

Just to parse it out.

I mean, given how critical it is for the model.

Historically, you've had really good visibility on future your revenues just given the nature of the license contracts.

And the fact that there's a pretty substantial amount of deferred revenue every year.

In fact at all the contracts are annual all the renewal rates and all the visibility that that provides you. So just to go back to that 10% to 19%.

Software outlook.

Comedy on on.

More and more large contracts as the mix shifts is there something that's different about the visibility on these contracts is there is there something that makes you a bit more cautious about the renewal rate the pacing of them coming to the room.

Any color you can provide on how that affects your and your forward visibility.

On the deferred revenue on the on the renewables and the conversion.

And then I've got a follow up question.

Each line.

Sure Mike I can answer that thanks.

Thanks for the question so.

So really when you think about <unk>.

Driving larger and larger contracts.

And again, we think the opportunity is still very significant.

You know.

The larger commitments that customers are making there's you know there's a lead time, there's a there's a deployment time.

And so.

Kent.

And they will they will.

We will enter into these contracts.

And we anticipate.

You know at larger and larger levels over time, but.

No.

The timing of when we convert customers to these larger levels.

Does play a more outsized factor the larger they get.

With regard to retention rates you know there's no issues. There obviously you saw that.

We have.

And 99% retention in our large customer base and over 100000 ACD.

It's really about.

And pretty significant decisions that our customers have to make multimillion dollar commitments that they have to make to upsize and sometimes that takes time and where we work hard to demonstrate to our customers the value that we're seeing on orange on our internal programs.

And in applying our solutions and much greater scale.

And they're currently applying to their own programs and that's an ongoing discussion that we have.

So there's both sales cycle and deployment time, and you know that doesn't impact the variability and the growth rate but.

But we are confident that over the long term the value of deploying our programs at much larger scale.

Is is large and significant and you know.

We are working to achieve that over a multiyear period.

And Mike Let me emphasize that you know its still we still continue to receive really.

Extraordinarily good feedback on on the software on and impact, it's having and that's increasing.

That's a really really important thing that we continue to see so still lots of optimism about.

Being able to.

Convince customers to scale up to this.

Level of usage debt, where where our partners and us internally are using.

So would it be fair to say that the and.

And you saw about 40% software growth in 2020, a lot of that was as you noted was a move up in terms of HCV from medium to large to very large.

We're not anticipating that those were onetime moves and some of those people may scale back down or May take a pause is that fair to say.

Absolutely.

Okay and then.

Follow up question.

And if I can squeeze the second one and.

And on the on the balance sheet and sort of the strength you have there and how that's going into the into the business obviously very.

Very strong balance sheet, how should we think about that being deployed across the business and you've got more than enough to support your cash flow and your.

Your cash needs as it is now so.

And it's been accelerating spend to support the clinical trial, how should we phase out through the course through the rest of this year.

And next year as those three lead.

With compounds move forward or is it sort of the back end of the portfolio and the software business could you comment on that.

Absolutely I mean, that's what we're obviously most excited about is the progress of the internal programs. The three that Karen talked about and you know that.

And I think that that should be viewed of course is a very positive thing that.

These programs have progressed to the point that they have that we've been able to build.

Internally on.

The organization that is required to be able to go into R&D, enabling studies and then into the clinic and debt. There's so much excitement about the mechanisms.

So that's that's definitely.

One of the very important.

And part of our strategy is to take.

Take these programs further into the clinic to.

Significant.

Value inflection points.

We are also.

As you know we have a.

Really differentiated platform and a significant.

Lead over anybody else and the space and in order and maintain that lead. It is important to continue to very aggressively invest and that platform maintain that lead and also to continue to advance the technology, we're seeing the impact it's having at our customer sites at our own internal programs and our collaborative programs and.

And where we've demonstrated that that investment and the science and getting the science right.

And has a really profound impact on on the way programs progressed. So we'll continue.

And two to lead and in this space and and to advance not only the accuracy the methods, but the domain of applicability, which allows us to work on even more targets than and then.

And whats possible today.

Okay. Thank you.

Yep.

Thank you as a reminder to ask a question you would need to press Star then one on your telephone.

Our next question comes from the line of David Lebowitz with Morgan Stanley. Your line is now early question.

Hello. Thank you for taking my question given the ACB is at 92.

And does it suggest that the ability to actually gain new customers as well.

And somewhat limited.

This point or I guess, what type of customers at this point are you actually trying to add.

So.

It depends on what area of the business, we're talking about saw on the life science side as you know.

The main source of growth there as Joel talked about and as we've talked about before.

Is to increase usage, we see.

See huge opportunity there because as Joel said.

And the level of usage of the software is much much lower even at our larger largest customers than it is than what we're using internally and what are what we're using with our partners on the materials science side. There. There are a lot of the growth is coming from new customers and new verticals that we're getting into.

So hopefully that answers your question.

And I guess, if we look across the client base I know that you definitely have had a lot more customers added to the 1 million users acu and some.

And more added to the 100000 ACD use and that's right.

With that in mind.

Are there and proportion of users in the $1 million.

That are disproportionate.

And actually.

Effect from the lion's share of the revenue.

Among all the users so while there might be 16, and the 1 million plus users are there a smaller proportion that are.

Disproportionately affecting the entire resolute revenue base and then.

I can answer that non U.

So, yes, so I think we and our and our K you can see the top clung countered for 34% of our revenue our top 10 customers.

From.

And I believe 29% the year before.

So it is up but you know, it's and that's an important element of our growth strategy, obviously as I've mentioned, our large customers getting much larger.

It remains to be a big opportunity for us going forward is wrong, we just discussed.

And there's plenty of runway left for growth there we believe.

But really we saw growth across.

Really broad based growth across the business.

Importantly, we also saw.

It was driven by uptake and our core solutions like FEP Clos across the business. Our enterprise solutions line design that connects the entire discovery work flow.

And really supporting very.

Solid growth and both life science and materials science and.

That led to the broad.

Acceleration and HCV and 'twenty 'twenty and it's why we are very excited about the multi year.

Year opportunity that we believe we have to both increase contract size across the business as well as increase the number of <unk>.

Customers as we continue particularly too.

To advance the materials science business.

Thank you for taking my questions.

You bet.

Thank you.

Our last question comes from the line of Robert births with brick by brick capital. Your line is now open.

Hi, guys. Thank you for taking my call I, just wanted to talk and touch base a little more on the sales strategy of kind of rolling up those medium sized customers to large size customers and I also wanted to clarify on and 99% retention rate is that just for the annual contracts from over 100000 and does that include.

And the contracts of 1 billion and over thank you.

Oh, yes on the second part of your question, Yes. It includes all customers over 100000, including the ones over 1 million, which as Joe said, 79% of the revenue.

And then you said and then you were asking the strategy for <unk>.

Growing those customers over 100000 is that what you were asking.

And then also the strategy for bringing in new customers, because I see that you guys and sales and marketing went down from 21 to 17 year over year net 19 to 20. So it was kind of wondering what's that why is that dropping and you guys are trying to get and more customers and the door and grow those customers right right. So the <unk>.

<unk> on the life science side is.

Quite simple and we've talked a lot about this so.

We of course have quite a number of close to 25 programs are so that we're running we're essentially using the software at scale at the appropriate scales and see that sort of to see the impact debt that we're seeing and our programs and Karen touched on debt and so we're that's the story on the on the pharma side.

<unk> is helping customers.

See that impact, but also deploying it. So this is this requires a pretty significant change and how a drug discovery projects I'll run you know shifting from from trial and error and just making a lot of compounds to really deploying on computation on on a large scale and thats the process there.

And that's something that is.

As a scientist to scientist sort of conversation and we have a lot of people on the company, including people and our drug discovery group that get involved and that and that process on the materials science side.

We're we're sort of a newer player and that in that space and then awareness and it isn't as high as it is on the pharma side there.

It involves that sort of what what is the potential role of computation and and molecular design of materials now the challenge there is unlike and drug discovery, where essentially every pharma and biotech companies effectively doing the same thing and the vocabulary is the same and materials.

A lot of different verticals, we have too.

Talk to companies that are designing organic light emitting diodes and signing battery.

Your line is designing polymers electronics industry.

You know, it's a lot of different.

Verticals and we're building up that.

That part of the organization to.

Be able to get the word out about the impact that computation is having on design of all types of materials.

And Rami, if I could add on the sales and marketing expense progression that you referenced so 2020 was obviously an interesting year for a lot of reasons.

And it was the impact from Covid, obviously was.

The.

Change in how we sell and market our programs on our software.

On the.

The part of that result was a reduction and.

The software and the sales and marketing effort.

In terms of expenses during the air travel and conferences and things of that nature.

The really exciting thing about.

The way, we what we learned from that was obviously very.

And very difficult situation for everybody, but what we did learn was that other ways for us to effectively communicate and stay in front of our customers and engage with even new customers. You saw the addition of new customers across the across the different segments.

Customer size segments and.

No.

The thing that.

Forward, what we anticipate is a return to.

And hopefully some semblance of normal at some point during the year, when we can reengage with customers and in person and we can be in person at conferences.

And we are planning for those.

Reinvestments if you will.

At some point during the year, but will also retain the.

What we've learned about efficiently reaching out this year, which was very effective but I think you need a combination of them. So we will be we do plan to.

On the investing in sales and marketing and also.

Scientific and technical support that Rami alluded to that are necessary to really pull through and support these large scale deployments larger and larger scale deployments that are so critical.

Thank you guys answered it really well.

Great.

Thank you.

There are no further questions.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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