Q4 2023 Schrödinger Inc Earnings Call

Operator: Thank you for standing by. Welcome to Schrodinger's conference call to review fourth quarter and full year 2023 financial results. My name is Mandeep, and I'll be your operator for today's call. There will be a question and answer session following management's prepared remarks. At this time, you can ask a question by pressing * one on your telephone keypad.

Thank you for standing by walking to Schroder Girth conference call to review fourth quarter and full year 2023 financial results.

It's Martin deep and I'll be your operator for today's call.

There will be a question answer session. Following managements prepared remarks at this time you can ask a question by pressing star one on your telephone keypad.

Operator: Please be advised that this call is being recorded at the company's request. Now, I would like to welcome your host for today's conference, Mr. Matthew Luchini, Director of Investor Relations and Corporate Affairs. Please go ahead.

Please be advised that this call's being recorded at the company's request.

Now I would like to welcome you.

Your host for today's conference Mr. Matthew Luchini director of Investor Relations and corporate Affairs. Please go ahead.

Matthew Luchini: Thank you, and good afternoon, everyone. Welcome to today's call, during which we will provide an update on the company and review our fourth quarter and full year 2023 financial results. Earlier today, we issued a press release summarizing our financial results and progress across the company, which is available on our website at schrodinger.com. Here with me on our call today is Ramy Farid, Chief Executive Officer.

Thank you and good afternoon, everyone welcome to today's call during which well provide an update on our company and review our fourth quarter and full year 2023 financial results earlier today, we issued a press release summarizing our financial results and progress across the company, which is available on our website.

Shredding or dot com.

With me on our call today are Rami <unk>, Chief Executive Officer, Geoff Porges.

Matthew Luchini: Jeff Porges, Chief Financial Officer, and Karen Akinsanya, President of R&D, Sarah Traer. Following our prepared remarks, we'll open the call for Q&A. During today's call, management will make statements that are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements related to our outlook for the full year 2024, our plans to accelerate the growth of our software business and advance our collaborative and proprietary drug discovery programs, the timing of, initiation of, and readouts from our clinical trials, the clinical potential and properties of our compounds, 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.

Chief Financial Officer, and care episodic president of R&D Therapeutics.

Following our prepared remarks, we'll open the call for Q&A. During today's call management will make statements that are forward looking and made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 995, including without limitation statements related to our outlook for the full year 2024, our plans to accelerate the growth of our software business and advance our collaborative.

Proprietary drug discovery programs.

The timing of initiation of Readouts from our clinical trials the clinical potential on properties of our compounds the use of our cash resources as well as our future 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.

Matthew Luchini: Actual results may differ materially due to a number of important factors, including the considerations described in the risk factors section and elsewhere in the filings we make with the SEC, including our Form 10-K for the year ended December 31, 2023. These forward-looking statements represent our views only as of today, and we caution you that, except as required by law, we may not update them in the future, whether as a result of new information, future events, or otherwise. Also included in today's call are certain, These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and should be considered only in addition to and not a substitute for or superior to GATT. Please refer to the tables at the end of our press release, which is available on our website, for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures. With that, I'd like to turn the call over to Ramy.

<unk> results may differ materially due to a number of important factors, including the considerations described in the risk factors section and elsewhere in the filings, we make with the SEC, including our Form 10-K for the year ended December 31, 2023. These forward looking statements represent our views only as of today and we caution you that except as required by law, we may not update them.

In the future.

Whether as a result of new information future events or otherwise also included in today's call are certain non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and should be considered only in addition to and not a substitute for or superior to GAAP measures. Please refer to the tables at the end.

Our press release, which is available on our website for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures with that I would like to turn the call over to Rami. Thanks, Matt and thank you everyone for joining US today, we've made incredible progress in 2023, and we expect to continue to make important advances across the business in 2024.

Ramy Farid: Thanks, Matt, and thank you everyone for joining us today. We made incredible progress in 2023, and we expect to continue to make important advances across the business in 2024. In 2023, we continue to make significant advances to the science that underlies our computational platform, and it is expected that we will continue to see increased adoption of our software at scales that are allowing our customers to meaningfully impact their programs. We also advanced our proprietary pipeline, including initiating a Phase I study for our second proprietary program, SGR 2921.

In 2023, we continued to make significant advances to the science that underlies our computational platform and as expected. We continued to see increased adoption of our software at scale that are allowing our customers to meaningfully impact their programs. We also advanced our proprietary pipeline, including initiating a phase one study for our second proprietary program <unk>.

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Ramy Farid: 2023 was also marked by progress at several companies we co-founded and in which we have equity stakes, including Nimbus, Morphic, and Structure. Their advancing programs further validate our platform, and in the case of Nimbus, their TIK2 inhibitor, which we co-discovered, led to the sale of the molecule to Takeda and a substantial cash distribution to Schrodinger last year. Total revenue for the year was $217 million, a 20% increase over the prior year.

2023 was also marked by progress at several companies, we co founded and in which we have equity stakes, including Nimbus Morphic and structure, they're advancing programs also further validate our platform and in the case of Nimbus Theyre TIK, two inhibitor, which we co discovered led to the sale of the molecule to Takeda and a substantial cash distributions.

Schrodinger last year total revenue for the year was 217 million% to 20% increase over the prior year software revenue grew by 17% year over year marked by multi year renewals with large biopharma companies, including an expanded three year software agreement with Lilly.

Ramy Farid: Software revenue grew by 17% year-over-year, marked by multi-year renewals with large biopharma companies, including an expanded three-year software agreement with Lilly. We had a very successful fourth quarter in our software business, reporting revenue of $69 million, the largest quarter for software revenue in our history. We ended the year with 27 customers with an annual contract value, or ACV, of at least $1 million, up from $18 million the prior year, reflecting customer demand and their increased confidence in the value that our platform can deliver. This year, we will continue to focus on increasing adoption of our platform at global biopharma companies as well as establish an emerging biotech. The interest in computationally-driven drug discovery has never been higher, and we are witnessing a sea change within We believe that the decades-long debate about the utility of computation is finally over.

We had a very successful fourth quarter in our software business reporting revenue of $69 million the largest quarter for software revenue in our history. We ended the year with 27 customers with an annual contract value or <unk> of at least 1 million up from 18 in the prior year, reflecting customer demand and their increased confidence in the valley.

That our platform can deliver this year, we will continue to focus on increasing adoption of our platform a global biopharma companies as well as the established and emerging biotechs. The interest in computationally driven drug discovery has never been higher and we are witnessing a sea change within the industry and how computation is regarded and.

Apply to drug discovery, we believe that the decades long debate about the utility of computation is finally over while the shift may have been fueled by the recent excitement about AI. There is also a growing understanding about some of the obvious limitations of AI. We believe we are well positioned to capitalize on this heightened interest in <unk>.

Ramy Farid: While this shift may have been fueled by the recent excitement about AI, there is also a growing understanding about some of the obvious limitations of AI. We believe we are well positioned to capitalize on this heightened interest in computation. Our platform is grounded in first-principles methods and leverages the accuracy of physics to generate training sets for machine learning and AI.

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Ramy Farid: This increased interest in computation has created a worldwide shortage of computational chemists and modelers, which in the near term may attenuate the full potential of computation, but we have made significant investments in training the next generation of modelers who will expect and demand validated computational technologies to advance their projects. Our platform is built on more than 30 years of science and has become the gold standard for computational molecular discovery. We are continuing to make investments to push the boundaries of molecular design, and we expect that computational breakthroughs in small molecule and biologics discovery will support future growth for many years to come. For example, we have recently published multiple papers demonstrating how our computational methods can improve the utility of ML-predicted protein structures, enabling research teams to work on even more targets through structure-based discovery.

This increased interest in computation is created a worldwide shortage of computational chemists and Modelers, which in the near term may attenuate the full potential of computation, but we have made significant investments in training. The next generation of Modelers, who will expect and demand validated computational technologies to advance their pre.

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Our platform is built on more than 30 years of science and has become the gold standard for computational molecular discovery.

We are continuing to make investments to push the boundaries of molecular design and we expect the computational breakthroughs in small molecule and biologics discovery formulations, and informatics will support future growth for many years to come.

We have recently published multiple papers, demonstrating how our computational methods can improve the utility of ml predicted protein structures, enabling research teams to work on even more targets through structure based discovery. We are also expanding our enterprise informatics solutions to increase efficiency and drive collaboration across teams.

Ramy Farid: We are also expanding our enterprise informatics solutions to increase efficiency and drive collaboration across teams. Even with the increased scale-up of our platform by our largest customers, we are still leveraging our platform to scale at least an order of magnitude greater than our largest customers. This is having a big impact on our ability to rapidly progress a broad pipeline of proprietary programs. We now have two programs in the clinic, SGR-1505, our MALT1 inhibitor, and SGR-2921, our CDC-7 inhibitor. In December, we reported positive data from our phase one study of SGR-1505 in healthy subjects and are encouraged by the progress in our ongoing patient study in advanced B-cell malignancy.

Even with the increased scale of our platform by our largest customers. We're still leveraging our platform to scale is at least an order of magnitude greater than our largest customers. This is having a big impact on our ability to rapidly progress our broad pipeline of proprietary programs. We now have two programs in the clinic <unk> five or <unk>.

One inhibitor and STR 2921, our <unk> seven inhibitor in December we reported positive data from our phase one study of <unk> <unk> five in healthy subjects and are encouraged by the progress in our ongoing patient study in advanced B cell malignancies, we expect to report data from the patient studies of both <unk>.

Ramy Farid: We expect to report data from the patient studies of both SGR 1505 and SGR 2921 in late 2024 or 2025. We are also on track to submit an investigational new drug application for SGR3515, our WE1-MIT1 inhibitor, in the first half of this year, and are advancing an existing portfolio of discovery programs to position us for our fourth IMD in 2025. Years ago, we set forth a bold vision to transform the way therapeutics and materials are discovered, and I'm incredibly proud of the progress we have made toward achieving this goal.

<unk> hundred five <unk> thousand 991 in late 2024 or 2025. We are also on track to submit an investigational new drug application for STR of $35 15 are we one minute one inhibitor and the first half of this year and are advancing an existing portfolio of discovery programs to position us for.

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Here's ago, we set forth a bold vision to transform the way therapeutics and materials are discovered and I'm incredibly proud of the progress we have made toward achieving this goal. There has been turbulence in the global economy and in many tech industries in particular, but we have never been more steadfast and our confidence in our technology and its potential.

Ramy Farid: There has been turbulence in the global economy, and in many tech industries in particular, but we have never been more steadfast in our confidence in our technology and its potential. We deeply appreciate the commitment and hard work of all our employees, and I look forward to another year of progress toward realizing our vision.

We deeply appreciate the commitment and hard work of all our employees and I look forward to another year of progress towards realizing our vision I'll now turn the call over to Jeff. Thank you Rami and good afternoon, everyone Shorting had an excellent Q4, which capped a strong 2023.

Geoffrey Craig Porges: Thank you, Ramy, and good afternoon, everyone. Schrodinger had an excellent Q4, which kept us strong in 2023. In Q4, we reported record revenue of $74 million, principally driven by software. For the full year, total revenue grew 20%, with the bookends of a large contribution to drug discovery revenue from a single milestone payment in Q1, and then several large multi-year software renewals driving revenue growth in Q4. The year was marked by the considerable progress we have made with our proprietary portfolio and the continued development of our technology platform, which is enabling new capabilities for molecular discovery even as our largest customers increase the scale of their deployment of our current platform. 2023 was also a year of great validation from our co-founded companies, with $147 million distribution from Nimbus boosting our cash flow and gap earnings, and Structure & Morphic significantly advancing their programs during the We see multiple avenues to grow our software revenue in 2024 and beyond and continue to be active in collaboration and partnership discussions with existing and potential new drug discovery partners. Now, we turn to a review of our fourth quarter results. Software revenue for the quarter was $69 million, an increase of 44%.

In Q4, we reported record revenue of $74 million, principally driven by software for the full year total revenue grew 20% with bookends of a large contribution to drug discovery revenue from a single milestone payment in Q1, and then several large multi year software renewals driving revenue growth in Q4 the year.

It was marked by the considerable progress we have made with our proprietary portfolio.

Turning to development of our technology platform, which is enabling new capabilities for molecular discovery, even as our largest customers increase the scale of their deployment of our current platform.

2023 was also a year of great validation from a co founded companies with 147 million distribution from Nimbus boosting our cash flow and GAAP earnings.

Rockford Morphic significantly advancing their programs during the year.

We see multiple avenues to grow our software revenue in 'twenty to 'twenty four and beyond continues to be active in collaboration and partnership discussions with existing and potential new drug discovery partners turning to a review of our fourth quarter results.

Revenue for the quarter was $69 million, an increase of 44%. The strong Q4 software result reflects the contribution from a number of multi year multimillion dollar on Prem software renewals in Q4 as well as some renewals by hosted customers with Ratably recognized software purchases.

Geoffrey Craig Porges: The strong Q4 software result reflects the contribution from a number of multi-year, multi-million dollar on-prem software renewals in Q4, as well as some renewals by hosted customers with ratably recognized software purchases. The contribution of these multi-year on-prem renewals in Q4 was significantly greater than the contribution of multi-year renewals in Q4 2022. Compared to Q3, software revenue more than doubled in line with our expectations and consistent with the typical seasonality of large customer yields. Drug discovery revenue for the quarter was $5.5 million, compared to $9 million in the same quarter of 2022 and $13.7 million in Q3. Revenue decreased in the quarter compared to the prior year based on non-recurring milestones reported in Q4 2022, as well as reduced contributions from a smaller number of active collaboration programs during the quarter.

The contribution of these multiyear on Prem renewals in Q4 was significantly greater than the contribution of multi year renewals in Q4 2022.

Compared to Q3 software revenue more than doubled in line with our expectations and consistent with the typical seasonality of large customer of yours.

Drug discovery revenue for the quarter was $5 5 million compared to $9 million in the same quarter of 2022 and $13 7 million in Q3.

Revenue decreased in the quarter compared to the prior year based on nonrecurring milestones reported in Q4 2022 as well as reduced contributions from a smaller number of active collaboration programs during the quarter.

Total revenue was $74 million in the quarter, an increase of 30% compared to Q4, 2012% to 74% increase compared to Q3 2023. The increase was driven by software revenue growth in Q4.

For the full year software revenue was $159 million, an increase of 17, 4% compared to the prior year.

Growth was driven by significant increases in our existing customers, including multi year renewals for large customers in Q4.

Geoffrey Craig Porges: Total revenue was $74 million in the quarter, an increase of 30% compared to Q4 2022 and a 74% increase compared to Q3 2023. The increase was driven by software revenue growth in Q4. For the full year, software revenue was $159 million, an increase of 17.4% compared to the prior year.

Full year drug discovery revenue was $57 5 million compared to $45 million in 2020 to the.

The increase was driven by progress in our existing collaborations recognition of some revenue from new collaborations announced in 2022 and accelerated revenue recognition for previously disclosed programs returned to us by our collaboration partners total revenue for the year was 217 billion compared to $181 million in 2022 the inquiry.

Geoffrey Craig Porges: The growth was driven by significant increases in our existing customers, including multi-year renewals by large customers in Q4, with a full-year drug discovery revenue of $57.5 million, compared to $45 million in 2022. The increase was driven by progress in our existing collaborations, recognition of some revenue from new collaborations announced in 2022, and accelerated revenue recognition for previously disclosed programs returned to us by our collaboration partners. Total revenue for the year was $217 million, compared to $181 million in 2022.

Total revenue was driven by both software and drug discovery revenue growth.

A little more color on trends in our software business.

Throughout 2023, we disclosed that we are engaged in discussions with a number of large customers.

Stepping up the level of investments into our technology.

We are encouraged that several of them elected to renew it significantly increased scale and value during Q4.

Those agreements contributed a substantial portion of the year on year reported growth in on Prem software. We view these companies as bellwethers in the industry.

Geoffrey Craig Porges: The increase in total revenue was driven by both software and drug discovery revenue growth. I have a little more color on trends in our software business. Throughout 2023, we disclosed that we were engaged in discussions with a number of large customers about stepping up their level of investment in our technology, and we are encouraged that several of them elected to renew at significantly increased scale and value during Q4. Those agreements contribute a substantial portion of the year-on-year reported growth in on-prem software. We view these companies as bellwethers in the industry and are engaged in discussions with other large companies about substantial renewal.

Jason discussions with other large companies about substantial renewals at.

At this stage of the year, we do see opportunities for growth from renewals. This year, but then some number of our largest customers entered into multiyear contracts in 2023.

Contributions from such additional renewals in 2024 is likely to be less than in 2023.

We reported that we continue to have four customers with annual contract value of at least $5 million and the average contract value for customers over $5 million grew significantly to $6 7 million.

The number of customers with ACB of at least $1 million has increased from 18% to 27% as more and more emerging companies recognize the value of increasing the scale of adoption. We have disclosed the new key performance indicator of customer retention among customers who are at least 500000 HCV.

Geoffrey Craig Porges: At this stage of the year, we do see opportunities for growth from renewals this year. But since the number of our largest customers entered into multi-year contracts in 2023, the contributions from such additional renewals in 2024 are likely to be less than in 2023. We reported that we continue to have four customers with annual contract values of at least $5 million, and the average contract value for customers over 5 million grew significantly to 6.7 million. The number of customers with ACV of at least 1 million has increased from 18 to 27, as more and more emerging companies recognize the value of increasing their scale of adoption. We have disclosed the new key performance indicator of customer retention among customers of at least 500,000 in ACV. Among such customers, retention was 98% in 2023.

One such customers the retention was 98% in 2023 and it was 100% in 2022.

Net customer retention for customers or at least 100000 per year with 92% in 2023 compared to 96% in 2022. The decrease was associated with increased consolidation and discontinuation of our R&D efforts by some biotech customers in the 100000 to 500000 ACB range.

This discontinuation rate has been elevated since 2021 and appears likely to remain elevated in 2024.

Moving now to expenses.

During Q4, the gross margin of our software revenue was 87%.

The gross margin performance in Q4 was particularly high based on the strong revenue results in the quarter. The full year gross margin performance was increased by favorable operating leverage on the shifting allocation of our structural biology team from customer facing projects to intermodal collaboration projects.

Geoffrey Craig Porges: It was 100% in 2022. Our net customer retention for customers of at least 100,000 per year was 92% in 2023, compared to 96% in 2022. The decrease was associated with increased consolidation and discontinuation of R&D efforts by some biotech customers in the 100,000 to 500,000 ACV range. This discontinuation rate has been elevated since 2021 and appears likely to remain elevated in 2024. Moving now to expense, during Q4, the gross marginalized software revenue was 87%. The gross margin performance in Q4 was particularly high based on the strong revenue results in the quarter.

We believe gross margin in future years is likely to be similar to 2023 with some potential variance depending on revenue performance and mix.

Cost of delivering our drug discovery revenue in Q4 was $7 9 million and declined compared to $10 million in Q4 2022 for the full year, our cost of drug discovery revenue was $46 5 million compared to $50 4 million in 2022. The change reflects the reallocation of internal resources from collaboration projects proprietary programs.

The positive profit contribution from our drug discovery revenue for the year reflects the benefits of the onetime milestone reported in Q1.

Overall gross margin was in Q4 was 78% compared to 68% in Q4 'twenty two based on improved profitability for software and the shift in mix.

Geoffrey Craig Porges: The full-year gross margin performance was increased by favorable operating leverage and the shift in allocation of our structural biology team from customer-facing projects to internal and collaboration projects. We believe gross margin in future years is likely to be similar to 2023, with some potential variance depending on revenue performance and mix. The cost of delivering our drug discovery revenue in Q4 was $7.9 million and declined compared to $10 million in Q4 2022. For the full year, our cost of drug discovery revenue is $46.5 million, compared to $50.4 million in 2022. The change reflects the reallocation of internal resources from collaboration projects to proprietary programs.

Full year software gross margin was 81% compared to 78% for 2022.

Software gross margin for the year improved due to lower royalty obligations and favorable operating leverage on our fixed costs of drug discovery gross margin was 19% for 2023 compared to a loss ratio of 11% for 2022 reflects the favorable effect of successful progression of our collaboration programs.

Our overall gross margin between Q3 was 65% compared to 56% for entering to the increase was due to the improvement in software and drug discovery gross margin.

As a result of the strong revenue and gross margin performance in Q4, our gross profit increased by 49% compared to Q4 2022 for the full year, our gross profit was $141 million compared to $101 million in 2022.

Geoffrey Craig Porges: The positive profit contribution from our drug discovery revenue for the year reflects the benefits of the one-time milestone reported in Q1. Overall Gross Margin in Q4 was 78% compared to 68% in Q4-22 based on improved profitability for software and the shift in. For the four years, software gross margin was 81% compared to 78% for 2022. The software growth margin for the year improved due to low royalty obligations and favorable operating leverage on a fixed cost. Our drug discovery gross margin was 19% for 2023 compared to a loss ratio of 11% for 2022. It reflects the favorable effects of the successful progression of our collaboration program. Our overall gross margin for 2023 was 65%, compared to 56% in 2022.

R&D expenses were $52 million in Q4, 2023 compared to $35 million in Q4 2022. The main drivers of the increase were increased FTE numbers CLO expenses in technology expense.

Compared to Q3, R&D expenses were 10% higher based on increased allocation of staff and resources to proprietary programs higher FTE numbers and increased zero expenses contributed.

For the full year R&D expense was $182 million, which was an increase of 44% compared to $126 million reported in 2020 to.

The increase for the year was driven by the shift in allocation from collaborations to proprietary programs higher FTE numbers and increases in cielo expenses.

As in the recent past R&D expenses are approximately balanced between our technology platform and our therapeutics.

A significant portion of the increase in R&D investment peak from 2022 to 2023 has been associated with the progression of our clinical portfolio.

We expect R&D expense growth to moderate in 2020 for sales and marketing expense for Q4 was 10 million compared to $9 4 million in Q4 2022. The increase was mainly due to increased staffing associated expenses compared to Q3 sales and marketing expense increased by 9% based on head count and year end incentive compensation.

Geoffrey Craig Porges: The increase was due to the improvement in software and drug discovery gross margin. As a result of the strong revenue and gross margin performance in Q4, our gross profit increased by 49% compared to Q4 2022. For the full year, our gross profit was $141 million, compared to $101 million in 2020.

For the full year sales and marketing expense was $37 million compared to $31 million in 2022, the increase of 21% was driven by higher head count associated expenses as well as increased travel.

<unk> expense for Q4 was 26 million compared to $23 million in Q4 2022. The increase is mainly due to high head count and onetime royalty obligations, partially offset by lower professional services for the full year G&A was $99 million and increased by 9% compared to 2022. The increase was mainly due to higher head count and FTE.

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Geoffrey Craig Porges: R&D expenses were $52 million in Q4 2023 compared to $35 million in Q4 2022. The main drivers of the increase were increased FTE numbers, CRO expenses, and technology. Compared to Q3, R&D expenses were 10% higher based on increased allocation of staff and resources to proprietary programs, higher FTE numbers, and increased CRO expenses.

For Q4 total operating expense was $87 million compared to $67 million in Q4 2022, the increase was mainly due to increases in R&D.

For the year total operating expense increased to $318 million compared to $248 million in 2022, the increase was mainly driven by R&D.

During Q4, our operating cash use was $37 million and our cash and short term investments declined by $34 million during the quarter.

For the year operating cash use was $137 million compared to $120 million in Q1 2022.

Geoffrey Craig Porges: For the full year, R&D expenses $182 million, which was an increase of 44% compared to the $126 million reported in 2022. The increase for the year was driven by the shift in allocation from collaborations to proprietary programs, higher FTE numbers, and increases in CROs. As in the recent past, our energy expenses are approximately balanced between our technology platform and our therapeutics. A significant portion of the increase in R&D investment from 2022 to 2023 has been associated with the progression of our clinical portfolio. We expect R&D expense growth to moderate in 2024. Sales and marketing expense for Q4 was $10 million compared to $9.4 million in Q4 2022.

Cash and marketable securities balance was $469 million at year end compared to $456 million at year end 2022.

During the year, our operating cash use was offset by the cash distributions from our investment in nimbus and by favorable trends in working capital.

Our operating loss for Q4 was $29 6 million compared to $28 5 million in Q4 2022, other items and expenses were $1 9 million in Q4 23 compared to income of $1 2 million in Q4 2022.

<unk> net loss was $30 7 million in Q4, 2003 compared to a loss of $27 million in Q4, 'twenty, two and a loss of $62 million in Q3 2023.

For the full year other income and expense items were $220 million driven by about 147 million distribution from our investment in Nimbus, a gain of $53 million in the fair value of our investments and $19 7 million other income mainly interest.

Geoffrey Craig Porges: The increase was managed due to increased staff and associated expenses, compared to Q3's sales and marketing expense increased by 9% based on headcount and year-end incentive compensation. For the full year, sales and marketing expenses were $37 million compared to $31 million in 2022. The increase of 21% was driven by higher headcount and associated expenses, as well as increased travel.

Pre tax income for the year was $43 million and our tax expense was $2 2 million and net income was $40 7 million or 54 cents per diluted share.

As we explained previously we do not expect our profitability in 2023 associated with Nimbus distribution to persist in 2024.

For GAAP reporting purposes, our fully diluted share count at year end was $75 million compared to $71 2 million at the end of 2020 to our basic share count increased by 8% over the prior year.

Geoffrey Craig Porges: G&A expense for Q4 was $26 million compared to $23 million in Q4 2022; the increase is mainly due to high headcount and one-time royalty obligations, partially offset by lower professional services. For the full year, G&A was $99 million, an increase by 9% compared to 2022. The increase is mainly due to high headcount and FTE expenses, as well as royalty obligations partially offset by lower professional salaries. For Q4, total operating expenses were $87 million compared to $67 million in Q4 2022. The increase is mainly due to increases in R&D. For the year, total operating expenses increased to $318 million, compared to $248 million in 2022.

Looking ahead to 2024 I already highlighted specific outsized top line contributions in 2023 that we have to grow past this year.

We currently expect that software revenue growth for 2024 will be in the range of 6% to 13%. We firmly believe software as a growth business for us, but that growth remains lumpy with outsized contributions from large customers when they renew extended contracts.

We have opportunities to significantly increase the adoption of our technology and our large accounts this year, but it is too early to forecast, whether they can match or exceed the contribution from such renewals last year.

We expect our growth outlook to benefit from the introduction of enhancements and new capabilities to our platform.

Geoffrey Craig Porges: The increase was mainly driven by R&D. During Q4, our operating cash use was $37 million, and our cash and short-term investments declined by $34 million during the quarter. For the year, operating cash use was $137 million compared to $120 million in 2022. Our cash and marketable securities balance was $469 million at year-end, compared to $456 million at year-end 2022.

Ah metrics for our accounts of at least 500000 at least a million at least $5 million trended positively in 2023, and we expect our revenue to grow in association with further changes in these metrics, while our largest customers in our purchasing significantly more than $5 million per year in software.

This level of adoption is already occurring among a relatively small proportion of the population of global biopharmaceutical companies.

Emerging Biopharma companies are also among our largest accounts and they're relatively high level of adoption of our technology also suggests further opportunity for our commercial efforts in 2024, we expect software revenue in Q1 to be in the range of $33 million to $35 million. Thanks, Rick the distribution of revenue by quarters to be similar.

Geoffrey Craig Porges: During the year, our operating cash use was offset by the cash distributions from our investment in Nimbus and by favorable trends in working capital. Our operating loss for Q4 was $29.6 million compared to $28.5 million in Q4 2022. Other items and expenses were $1.9 million in Q4 2023 compared to an income of $1.2 million in Q4 2022. Our net loss was $30.7 million in Q4 2023 compared to a loss of $27 million in Q4 2022 and a loss of $62 million in Q3 2026. For the full year, other income and expense items were $220 million, driven by the $147 million distribution from our investment in Nimbus, a gain of $53 million in the fair value of our investments, and $19.7 million in other income, mainly from. Our pre-tax income for the year was $43 million, and our tax expense was $2.2 million, and that income was $40.7 million, or $0.54 per diluted share. As we explained previously For GAAP reporting purposes, our fully diluted share count at year-end was $75 million, compared to $71.2 million at the end of 2022. Our basic share count increased by 0.8% over the prior year.

Sure to that reported in recent years.

We expect drug discovery revenue in the range of $30 million to $35 million for 2020 for.

Our guidance incorporates uncertainty about the occurrence and timing of development decisions by our collaboration partners and uncertainty about the outlook for progress of programs in our ongoing collaborations.

We have taken a cautious approach to including value for new business development activity. This year, although we continue to be actively engaged in discussions about such opportunities with a variety of emerging and global companies. We expect our software gross margin to be similar to our gross margin in 2023, that's a very slightly depending on customer mix and contract type.

Operating expense growth in 2024 is likely to be in the 4% range significantly below the 28% growth in 2020 three.

In 2020 for the growth is likely to be mainly for increased investment in R&D, particularly to support our growing portfolio of proprietary programs.

We anticipate that our operating cash burn in 'twenty 'twenty, four will be higher than our cash burn in 2023.

Our goal is to reduce our cash burn in 2025, and later years that reduction will depend on continued growth in our software revenue realization of value from our proprietary portfolio and continued operating expense and head count growth discipline.

To conclude we had an excellent fourth quarter and a very strong year extraordinary in 2023 with progress in our software business collaborations and proprietary programs.

We realized considerable value from our collaborations and co founded company investments and we see opportunities to create even more value from these activities in 2024 and beyond.

Geoffrey Craig Porges: Looking ahead to 2024, I already highlighted specific outside top line contributions in 2023 that we have to grow past this year. We currently expect that software revenue growth for 2024 will be in the range of 6 to 13%. We firmly believe software is a growth business for us, but that growth remains lumpy, with outsized contributions from large customers when they renew extended contracts. We have opportunities to significantly increase the adoption of our technology in our large accounts this year, but it is too early to forecast whether they can match or exceed the contribution from such renewals last year. We expect our growth outlook to benefit from the introduction of enhancements and new capabilities to our platform. Our metrics for our accounts of at least 500,000, at least a million, and at least 5 million trended positively in 2023, and we expect our revenue to grow in association with further changes in these metrics.

Capital allocation is shifting towards our proprietary portfolio and we are excited that the early clinical data from those programs will emerge in the next one to two years.

With the industry's leading computational chemistry platform and a growing portfolio of private proprietary medicines and investments in co founded companies and collaborations coming to fruition. The future is very bright for sure.

Now I'll turn the call over to Karen to provide you with an update about our therapeutics R&D activities.

Thank you, Jeff and good afternoon, everyone.

Therapeutics team continues to advance the maturing pipeline of collaborative and proprietary programs as Rami <unk> companies. We have co founded are successfully advancing programs into clinical trials, including phase two and three providing repeated and extensive validation of the impact of that platform when deployed at scale.

Geoffrey Craig Porges: While our largest customers are now purchasing significantly more than $5 million per year in software, this level of adoption is only occurring among a relatively small proportion of the population of global biopharmaceutical companies. Emerging biopharma companies are also among our largest customers to count, and their relatively high level of adoption of our technology also suggests further opportunity for our commercial efforts in 2024. We expect software revenue in Q1 to be in the range of $33 to $35 million and expect the distribution of revenue by quarters to be similar this year to that reported in recent years.

A growing number of our proprietary programs are successfully transitioning into IND, enabling studies and clinical development I will now review recent progress on several of our proprietary programs in more detail starting with our <unk> one inhibitor STR <unk> five during a recent pipeline today, we reported the SD.

<unk> was well tolerated in a completed phase one study of 73 healthy volunteers no drug related serious adverse events or dose limiting toxicities were observed.

Steady state STR <unk> exposures achieved greater than 90% inhibition of Iot is accretion and activated T cells, confirming target engagement and meeting the pharmacodynamic goals for this study the healthy subject data provide important insights into the safety and clinical pharmacology and <unk> five and then.

Geoffrey Craig Porges: We expect drug discovery revenue to be in the range of $30 million to $35 million for 2024. Our guidance incorporates uncertainty about the occurrence and timing of development decisions by our collaboration partners and uncertainty about the outlook for progress of programs in our ongoing collaboration. We have taken a cautious approach to including value for new business development activity this year, although we continue to be actively engaged in discussions about such opportunities with a variety of emerging and global companies. We expect our software gross margin to be similar to our gross margin in 2023 and to vary slightly depending on customer mix and contract type. Operating expense growth in 2024 is likely to be in the 8-12% range, significantly below the 28% growth in 2023.

The need to explore a food effect and drug drug interaction potential in outpatient study.

We presented data demonstrating the STL 15, OSI achieved maximum inhibition of Iot NXT, the human blood at greater than 50 fold lower concentration than the benchmark molecule, which has shown clinical responses in indolent or aggressive lymphoma mcl now, let's build that confidence in the profile of that comp.

And we are encouraged by the progress in our ongoing phase one study of STR <unk> five in patients with relapsed refractory b cell lymphoma and.

Geoffrey Craig Porges: In 2024, growth is likely to be mainly due to increased investment in R&D, particularly to support our growing portfolio proprietary program. We anticipate that our operating cash burn in 2024 will be higher than our cash burn in 2023. Our goal is to reduce our cash burn in 2025 and later years, and that reduction will depend on continued growth in our software revenue, realization of value from our proprietary portfolio, and continued operating expense and headcount growth discipline. To conclude, we had an excellent fourth quarter and a very strong year at Schrodinger in 2023 with progress in our software business, collaborations, and proprietary programs. We realize considerable value from our collaborations and co-founded companies, and we see opportunities to create even more value from these activities in 2024 and beyond.

We are continuing to expand the number of clinical trial sites globally, allowing us to increase enrollment and make good progress through dose escalation. Despite the early enrollment challenges. We previously discussed we are encouraged that in patient safety and Tolerability is consistent with the profile observed in the 10 day healthy volunteer study.

As of mid February all enrolled patients have remained on track. We are on track to have initial clinical data late in 2024. All in 2025. We are also looking forward to presenting details about the discovery of STL 15 inside and an oral presentation at the spring Acs meeting next month.

We are also continuing to advance our CDC seven inhibitor <unk> thousand 921 in December we reported data from a range of translational models, representing treatment naive patients relapsed refractory patients and models incorporating P 53, and flit three mutations that confirmed broad sensitivity to <unk>.

Geoffrey Craig Porges: Our capital allocation is shifting towards our proprietary portfolio, and we are excited that the early clinical data from those programs will emerge in the next one to two years, with the industry's leading computational chemistry platform and a growing portfolio of proprietary medicines and investments in co-founded companies and collaborations coming to fruition. The future is very bright for Schrodinger. Now I'll turn the call over to Karen to provide you with an update on our therapeutics R&D activities. Thank you, Geoff, and good afternoon, everyone.

<unk> 2921, these preclinical data and key opinion leader feedback confirms high interest and mechanisms that have mutation agnostic antiplastic potential providing compelling rationale for our ongoing phase one study in patients with acute myeloid leukemia or myelodysplastic syndrome. The primary.

Karen Akinsanya: Our therapeutics team continues to advance the maturing pipeline of collaborative and proprietary programs. As Ramy and Geoff reported, companies we have co-founded are successfully advancing programs into clinical trials, including phase two and three, providing repeated and extensive validation of the impact of our platform when deployed at scale. A growing number of our proprietary programs are successfully transitioning into IND-enabling studies and clinical development. I'll now review recent progress on several of our proprietary programs in more detail, starting with our MORT1 inhibitor, SGR1505. During our recent pipeline day, we reported that SGR1505 was well-tolerated in a completed phase one study of 73 healthy volunteers. No drug-related serious adverse events or dose-limiting toxicities were observed.

This study to evaluate the safety pharmacokinetics and pharmacodynamics and establish the recommended phase two dose.

Study is progressing well with multiple dose escalation steps completed and we expect to report initial data in late 'twenty four 'twenty five.

Turning to <unk> 35, 15, we continue to be excited about the differentiated pharmacological profile of our molecule S. J F. 35, 15 inhibits both <unk>, one and you can kind of that's a function of these two proteins confirm selected vulnerability in cancer cells.

Synthetic lethality and a 47 non small cell lung cancer preclinical model S. Gel 35, 15 has shown sustained tumor growth inhibition, while maintaining a favorable safety profile using an intermittent dosing schedule. We are on track to submit the IND for S. J F 35, 15 in the first half of 2000.

Karen Akinsanya: Steady-state SGR 1505 exposures achieved greater than 90% inhibition of IL-2 secretion in activated T-cells, confirming target engagement and meeting the pharmacodynamic goals for the study. The healthy subject data provide important insights into the safety and clinical pharmacology of SGR 1505, obviating the need to explore fluid effect and drug-drug interaction potential in our patient study. At ASH, we presented data demonstrating that SGR 1505 achieves maximum inhibition of IL-2 in ex vivo human blood at greater than 50-fold lower concentrations than the benchmark molecule, which has shown clinical responses in indolent or aggressive lymphoma and CLL. This builds our confidence in the profile of our compound. We are encouraged by the progress in our ongoing Phase I study of SGR 1505 in patients with relapsed refractory B-cell infirmers.

74 to enable the initiation of a phase one dose escalation study by the end of this year. In addition, we are progressing several discovery programs, including inhibitors of <unk> 797, as the RMT five MTA and <unk> highlighted that pipeline day, we have identified potent selective and.

Inhibitors that may have come product profile design challenges observed across other programs and are on track to select candidates that will support and additional data submission in 2025 and our collaborative portfolio. We are excited about the progress we have made in identifying oral small molecule inhibitors for targets previously addressed by MTT.

Body or that require intravenous administration.

Karen Akinsanya: We are continuing to expand the number of clinical trial sites globally, allowing us to increase enrollment and make good progress through dose escalation, despite the early enrollment challenges we previously discussed. We are encouraged that in patients, safety and tolerability are consistent with the profile observed in the 10-day Healthy Volunteer Study. As of mid-February, all enrolled patients have remained on treatment.

We anticipate advancing early stage proprietary modality, such programs such as <unk> across multiple disease areas.

In 2023, we completed our <unk> healthy volunteer study and opened additional sites globally in the patient study, we initiated dosing in 2991 oncology trial and advance our IND, enabling studies for SJI 35 15.

Karen Akinsanya: We are on track to have initial clinical data late in 2024 or early in 2025. We are also looking forward to presenting details about the discovery of SGR 1505 in an oral presentation at the Spring ACS meeting next month. We are also continuing to advance our CDC-7 inhibitor SGR2921. In December, we reported data from a range of translational models representing treatment-naive patients, relapsed refractory patients, and models incorporating P53 and FLIT3 mutations that confirm broad sensitivity to SGR2921. These preclinical data and key opinion leader feedback confirm high interest in mechanisms that have mutation-agnostic antiperipheral potential, providing compelling rationale for our ongoing phase one study in patients with acute myeloid leukemia or myelodysplastic syndrome.

<unk> also progressed several discovery program to enable a steady flow of programs for internal or partner development ill now turn the call back to Rami. Thank you Karen as you heard we had a very successful 2023 and are off to an excellent start. This year, we look forward to providing further updates across our business throughout the year at this time.

We'd be happy to take your questions.

Yeah.

The floor is now open for your questions to ask a question at this time simply press star followed by the number one on your telephone keypad will now take a moment to compile our roster.

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

Hi, this is <unk>.

One on the LIBOR Michael Thank you for taking my question I guess.

Karen Akinsanya: The primary objectives of this study are to evaluate the safety pharmacokinetics and pharmacodynamics and establish the recommended phase two dose. The study is progressing well with multiple dose escalation steps completed, and we expect to report initial data in late 24 or 25. Turning to SGR3515, we continue to be excited about the differentiated pharmacological profile of our molecule. SGR3515 inhibits both WE1 and MIT1, and concurrent loss of function of these two proteins confers selected vulnerability in cancer cells, termed synthetic lethality.

My first question is how should we think about the software guidance of $6 or 13% year over year growth, which seems actually lower than the typical 15% growth.

<unk> guided in the past years, especially given the recent industry wide AML momentum.

And secondly on <unk>.

Maybe comment.

How the recent AI evolution changes your view on the competitive landscape and what are your efforts that will keep your ahead of competition. Thank you.

Jeff do you want to take the first one sure. Thanks, yes.

Karen Akinsanya: In the A427 non-small cell lung cancer preclinical model, SGR3515 has shown sustained tumor growth inhibition while maintaining a favorable safety profile using an intermittent dosing schedule. We are on track to submit the IND for SGR3515 in the first half of 2024 to enable the initiation of a Phase I dose escalation study by the end of this year. In addition, we are progressing several discovery programs, including inhibitors of EGFR-C797S, PRMT5-MTA, and NLRP3, highlighted at pipeline day. We have identified potent selective inhibitors that may overcome product profile design challenges observed across other programs and are on track to select candidates that will support an additional IND submission in 2025. In our collaborative portfolio, we are excited about the progress we have made in identifying all small molecule inhibitors for targets previously addressed by antibodies or that require intravenous administration, and we anticipate advancing early-stage proprietary modality switch programs such as these across multiple disease areas.

Yes regarding the guidance for software.

We have a very high degree of confidence in the long term growth potential of the software.

We have multiple opportunities to increase the adoption of the software.

Largest customers, but also to move up what we refer.

Our next tier of customers.

But we highlighted.

But quite a bit more.

But still not at that five.

So.

There's a lot of a charity.

Having said.

My remarks.

There were significant renewals of multi year call.

In the fourth quarter.

With that very strong fourth quarter revenue number and those renewals.

Great.

Or is it a headwind for us to overcome in 2024. So we do believe that we can grow the business. We believe that we can.

Continue.

That growth trajectory that you mentioned.

From the previous year, but we have to overcome the effective yields in the fourth quarter, but the underlying dynamics of the business.

<unk> growing significantly.

Also highlight that in 'twenty two 'twenty three.

We did see.

Some of the effects of capital market and a small account.

And you can see that in some of the information about the Kpis where the.

Karen Akinsanya: In 2023, we completed our SGR 1505 Healthy Volunteer Study and opened additional sites globally in the patient study. We initiated dosing in our 2921 Oncology Trial and advanced IND-enabling studies for SGR 3515. We also progressed several discovery programs to enable a steady flow of programs for internal or partner development. I'll now turn the call back to Ramy. Thank you, Karen. (Inaudible) The floor is now open for your questions. To ask a question at this time, simply press star followed by the number one on your telephone keypad.

All right.

Cross border just quickly went down slightly.

10%.

That is very high and the logic there are.

Our smaller customers that we are.

Some of the turmoil.

The company is running out of capital.

Deborah.

Yes.

The drag on our growth rate.

More clarity on that suggesting a 'twenty 'twenty four.

Got it.

And some of those companies to go ahead and get funded.

I will also provide us with opportunity.

Well I mean, you're talking about yeah, absolutely. So let me just also.

Operator: We'll now take a moment to compile our roster. Our first question comes from the line of Michael Yee with Geoffrey. Your line is open. Hi, this is charging one on the line for Michael Yee.

What what Jeff just said I mean, there's no question that we view this.

Software business as a growth business there is still as Jeff said, many opportunity now one of those.

Unknown Caller: Thank you for taking my question. I guess my first question is, how should we think about the software guidance of six to 13% year over year growth, which seems actually lower than the typical 15% growth guided in the past years, especially given the recent industry-wide AI momentum? And secondly, maybe comment on how the recent AI evolution changes your view of the competitive landscape and what your efforts are that will keep you ahead of the competition. Thank you. Geoff, do you want to take the first one?

As you mentioned is actually.

Nice progress in AI.

Structural biology, and biology front.

And then in structural biology front. This is something we've actually published on recently.

Resulting in a bigger supply of protein.

Protein structures, which is the input of course to our physics based methods as we've shown these structures still need a refinement with physics based methods, which of course, we develop but this is providing a larger pool of targets.

Geoffrey Craig Porges: Sure. Thanks. Yes. Regarding guidance for the software business, we have a very high degree of confidence in the long-term growth potential of the software business. We have multiple opportunities to increase the adoption of the software in our largest customers but also to move up what we sort of refer to as the next tier of customers that we highlighted today that are greater than 1 million but still not at that 5 million per year. So there's a lot of opportunity. That being said, as I highlighted in my prepared remarks, there were significant renewals of multi-year contracts in the fourth quarter that delivered that very strong fourth-quarter revenue number, and those renewals effectively posed a headwind for us to overcome in 2024.

Similarly.

A lot of the work in AI I'm, sorry of elucidation of biology is also resulting in a larger number.

Targets that are of interest and of course that helps fuel growth in our business now with regard to your comment about staying competitive.

I think we talked a lot about this we have a.

Very large effort in the area.

Developing state of the art using state of the art machine learning methods, but as we've shown over and over again and discussed many many times. These method have no value without a training set.

Ramy Farid: So we do believe that we can grow the business. We believe that we can continue with that growth trajectory that you mentioned from previous years, but we have to overcome the effect of those deals in the fourth quarter. But the underlying dynamics of the business are still growing significantly.

And of course, that's the definition of machine learning and we've shown that our.

Is it a platform is in a unique position to be able to develop the sorts of training.

That are required to actually make machine learning.

Geoffrey Craig Porges: I will also highlight that in 2023, we did see some of the effects of the biotech capital markets in our smaller customers, and you can see that in some of the information about the KPIs, where the renewal rate across the broad customer group went down slightly from, I think, 96% to 92%. But it remained very high in the larger customers.

Fully realize the utility of machine learning and to date we.

See no effort in the state that are competitive with our physics based approaches. So we're feeling very good about about world about our leadership position in this area.

Great. Thank you.

Thanks.

Our next question comes from the line of David Leibowitz with Citigroup.

Ramy Farid: And to those smaller customers, we are seeing some of the turmoil associated with companies running out of capital, shutting down R&D, getting merged, acquired, et cetera. We think that that's been a drag on our growth in 2023. We think we're planning on that happening in 2024. But if there's some relief in that, and some of those companies do go ahead and get funded, then that will also provide us with opportunities. Ramy, do you want to talk about AI? Absolutely. So let me just also emphasize what Jeff just said. I mean, there's no question that we view this, our software business, as a growth business. There's still, as Jeff said, many opportunities. Now, one of those.

Your line is open.

Thank you very much for taking my question and when you look at the.

Drug discovery guidance for next year.

You had spoken.

Earlier in the.

In this quarter in January about a shift in the methodology and guidance.

And I was wondering if you could clarify the extent that.

The guidance for next year.

Reflects a shift from your expectations that you would have given under your prior methodology with guidance.

Just to understand the extent that this shift is granted organic shift in expectations versus.

Ramy Farid: As you mentioned, there's actually some nice progress in AI on structural biology and biology. And on the structural biology front, this is something we've actually published on recently. This is resulting in a bigger supply of protein structures, which is the input, of course, to our physics-based methods. But as we've shown, these structures still need refinement with physics-based methods, which, of course, we've developed.

Systematic change relative to your approach.

Yes, thanks for the question, David I totally out.

Yes.

We that was challenging too.

Provide guide incorporates.

So the associated with partners.

Advancing programs.

Ramy Farid: But this is providing a larger pool of targets. Similarly, a lot of the work in AI on sort of elucidation of biology is also resulting in a larger number of targets that are of interest. And, of course, that helps fuel growth in our business. Now, with regard to your comment about staying competitive, I think we've talked a lot about this. We have a very large effort in the area of developing state-of-the-art, using state-of-the-art machine learning methods. But, as we've shown over and over again and discussed many, many times, these methods have no value without a training set.

That will trigger milestones.

So our benefit and we just.

To have information about for example, where our phase III trial.

Well the phase III trial readout and so we have elected to take those models out of that guidance, because we just cant determine what Paul's already both programs are advancing as or when they will have that so that is all.

A change that we had.

Second the change we've made is that we we all including any allowances or estimates or new business development transactions.

Ramy Farid: And, of course, that's the definition of machine learning. And we've shown that our physics-based platform is in a unique position to be able to develop the sorts of training sets that are required to actually do machine learning, you know, to fully realize the utility of machine learning. And to date, we see no efforts in the space that are competitive with our physics-based approaches.

New collaborations with new partners or partnering proprietary programs now of course, we're in active discussions with many participants in the industry, so large companies and emerging cap.

Lots of different opportunities, but again, we just didn't think that we could reasonably estimate the probability timing value et cetera.

Ramy Farid: So we're feeling very good about our sort of leadership position in this area. Great, thank you. Thanks. Our next question comes from the line of David Lebowitz with Citigroup. Your line is open.

What might emerge most discussions so we also kept that out of the guidance for drug discovery.

And we were guiding to what we believe today.

David Neil Lebowitz: Thank you very much for taking my question. When you look at the drug discovery guidance for next year, you had spoken earlier in this quarter, in January, about a shift in the methodology and guidance, and I was wondering if you could clarify the extent of the guidance for next year. Um, reflects a shift from your expectations that you would have given under your prior methodology with guidance. Just to understand the extent that the shift is an organic shift in expectations versus a systematic change relative to your approach. Yeah, thanks. Thanks for your question, David. I totally understand that.

The most likely range of outcomes at the beginning of the year, but you can imagine that we're going to be very busy throughout the year.

Looking forward.

Jeremy mentioned.

But that's the most likely range of outcomes at this stage of the year.

Thank you for taking my question.

Your next question comes from the line of Vikram <unk> with Morgan Stanley. Your line is open.

Hi, Thanks for taking our questions. We had two one on the software guidance and then one on the pipeline.

So for the revenue growth guidance of 6% to 13% could you provide a bit more color on.

What situations would drive.

Each of those bookends and then for the one data set are expected later this year or next year, how are you framing.

Geoffrey Craig Porges: Yes, we... We've found the challenges to provide guidance that incorporates the uncertainty associated with partners advancing programs that would trigger milestones to our benefit, and we just aren't in a position to have information about, for example, where a phase two trial might start or a phase three trial might read out. And so we have elected to take those milestones out of our guidance because we just can't determine what the probability of those programs advancing is or when they will advance. So that is a change that we have made. The second change we've made is that we aren't including any allowances or estimates for new business development transactions, i.e.

What a strong outcome here could be and.

Any details available at this point on how much data how much follow up may be available through through that initial patient dataset. Thank you.

And you want to do the second question first.

Yeah.

Okay.

So right now.

<unk> B cell malignancies.

In terms of the data.

Gathering PK and PD in phases phase one dose escalation trial.

And activity.

In that trial.

In terms of what good looks like I think.

Is that still to be determined.

Geoffrey Craig Porges: new collaborations with new partners or partnering proprietary programs. Now, of course, we're in active discussions with many participants in the industry, both large companies and emerging companies, about lots of different opportunities, but again, we just didn't think that we could reasonably estimate the probability, timing, value, etc. of what might emerge from those discussions. So we've also kept that out of the guidance for joint discovery.

Yes, and for example, also Oh.

And CR and PR.

In that trial.

Something obviously looking at it.

We believe.

Hum won't be or.

This mechanism.

Monotherapy and then ultimately in combination, whereas you know again.

Very interesting data presented.

Yes.

Hum.

I mean, what was the second part of your question.

Geoffrey Craig Porges: And we're guiding to what we believe today to be the most likely range of outcomes at the beginning of the year. But you can imagine that we're going to be very busy throughout the year looking for all these opportunities that I mentioned, but that's the most likely range of outcomes at this stage of the year. Thank you for taking my question. Your next question comes from the line of Vikram Purohit with Morgan Stanley. Your line is open.

The first question was about the stuff, but yes, so we'll answer that but there were two parts I think yes.

We enter your question.

Hey come on about one one.

The second part of the mall one question was just.

Any color you might have at this point on how much data we could see how much follow up we could see tumor.

Tumor types et cetera.

Yeah, I mean, it's a little.

Early to say I think.

We're monitoring.

P D and clinical activity.

Vikram Purohit: Hi, thanks for taking our questions. We had two, one on the software guidance and one on the pipeline. So for the revenue growth guidance of 6 to 13%, could you provide a bit more color on which situations would drive each of those bookends? And then for the one dataset expected later this year or next year, how are you framing what a strong outcome here could be? Any details available at this point on how much data and how much follow-up may be available through that initial patient data set? Thank you. Do you want to do the second question first?

I just think it's too early to say what they are.

Sure.

Next year.

Yeah that is going well enrolment is going well.

To give you an update.

Yes.

Yes.

I'll take a first stab at the at your first question and hand, it over to Jeff If there is anything else to add.

Ed.

Here's how we see it there are.

There is a remarkable.

Heightened interest.

In computation among pharma companies emerging companies I mean, it's a really exciting time at <unk> as we said the sort of decade long debate of whether to use computation and how to use it and does it really work is I mean this is such an exciting thing to be saying given how long we've been in that in that field is Oliver so.

Karen Akinsanya: Yeah, so, as you know, we're in a patient trial right now where we're recruiting into B-cell malignancies. In terms of the data, obviously, we're still gathering PK, PD, and FACI. It's a Phase I dose escalation trial, but we obviously will also be looking at activity in that trial. And in terms of what good looks like, I think, you know, that's still to be determined.

There is really significant demand what's going to.

Dictate sort of where we end up in the range is.

Karen Akinsanya: We know that Janssen, for example, saw ORR and CRs and PRs in their trial, but that's something that obviously we're still looking at is, you know, what we believe a great outcome will be for this mechanism as monotherapy and then, ultimately, as a combination, whereas, you know, again, there was very interesting data presented previously by Janssen. And what was the second part of the question? The first question was about

Whether companies can.

I'll get to the point of scaling up their software to the level that we see our largest customers that and thats going to pen depend on things like.

And we talked about this sort.

Worldwide shortage of mothers, how long is it going to take to train modelers.

And to bring them on board.

And how long is it going to take to.

Karen Akinsanya: Yeah, so we'll answer that, but there were two parts, I think. Yeah. Yeah. Did we answer your question, Vikram, about Malt 1? Yeah, the second part of the MOL1 question was just any color you might have at this point on how much data we could see, how much follow-up we could see, tumor types, etc. Yeah, I mean, it's a little bit too early to say.

The system set up to be able to access the kinds of compute resources that are required to run our calculation.

The interest is there it really is there it's just a matter of sort of how how quickly and how large the scale up and scale up is starting to happen in the industry and that's the exciting thing is Jeff has it happened across the board evenly with all top companies in the hundreds of emerging companies no not yet.

Karen Akinsanya: I think, as I said, you know, we're monitoring for PKPD and clinical activity. So I just think it's too early to say what we'll be able to share this year versus next year. But yeah, the study's going well, enrollment's going well, and we look forward to giving you an update in due course. Vikram, I'll take a first stab at your first question and hand it over to Geoff if there's anything else else to add.

The other thing that's important to keep in mind and Jeff has talked about this again, Jeff can add more color. It remember we have very different revenue recognition rules associated with on Prem versus hosted and the sort of mix of hosted and on Prem has a big impact on this on this range. It doesn't impact the underlying growth is there, but how it gets rack.

Ramy Farid: Here's how we see it. There are [inaudible] in computation among pharma companies and emerging companies. I mean, it's a really exciting time.

Ramy Farid: It seems, as we said, this sort of decade-long debate of whether to use computation and how to use it and, you know, does it really work is, I mean, this is such an exciting thing to be saying given how long we've been in this field. It's over. So there's really significant demand. What's going to dictate sort of where we end up in the range is whether companies can get to the point of scaling up their software to the level that we see our largest customers at. And that's going to depend on things like, and we talk about this, you know, this sort of worldwide shortage of modelers. How long is it going to take to train the modelers and bring them on board?

Ignite and what year and so on it's obviously variable so Jeff do you want to add anything to it.

No.

Okay.

The timing of the <unk>.

The new rules that we see during the year has a large impact.

How those renewals translates to revenue so if we renew with multi years versus single years I'm hesitant, but secondly, if we review on a hosted basis.

And I did highlight.

A little bit in my prepared remarks.

There is a slow trend towards more hosted.

Ramy Farid: And how long is it going to take to get the IT system set up to be able to access the kinds of compute resources that are required to run our calculations? So the interest is there. It really is there.

That of course slows down our reported revenue growth as we make that transition, but ultimately we think that it's beneficial because it produces a more steady and predictable revenue outlook.

Ramy Farid: It's just a matter of sort of how quickly and how large the scale up is. And the scale up has started to happen in the industry. And that's the exciting thing. But has it happened across the board evenly with all the top companies and the hundreds of emerging companies? No, not yet.

We're not going to.

That's that transition all of sudden basis rapidly, but it is underway so the type of contract.

Timing of the contract during the year of course degree.

Ramy Farid: The other thing that's important to keep in mind, and Jeff has talked about this, and again, Jeff can add more color, is that we have very different revenue recognition rules associated with on-prem versus hosted. And the sort of mix of hosted and on-prem has a big impact on this, on this range. It doesn't impact, you know, the underlying growth is there, but how it gets recognized in what year and so on is obviously variable.

Degree of scale up whether a customer is going for a $1 million a year contract two 2 million or three eight contract that's the fundamental driver.

Lots of opportunity as Brian alluded to all the scale up but of course, it does get down to every single contract and how it gets recognized.

Got it thank you.

Thanks Victor.

Our next question comes from the line of Evan <unk> with BMO capital markets.

Ramy Farid: So, Jeff, do you want to add anything to that? Yeah, I would just say the timing and type of the renewals that we see during the year have a large impact on how those renewals translate to revenue. So, first, if we renew for multi-years versus single years, that has an impact. And secondly, if we renew on a hosted basis versus on-premises. And I did highlight a little bit in my prepared remarks that there is a slow trend towards more hosted services that, of course, slows down our reported revenue growth as we make that transition. But ultimately, we think that is beneficial because it produces a more steady and predictable revenue outlook. So, we're not going to accelerate that transition on a sudden basis, but it is underway. So, the type of contract, the timing of the contract during the year, and, of course, the degree of scale-up, whether a customer is going from a 1 million-a-year contract to a 2 million or 3 million-a-year contract, that's the fundamental driver.

Your line is open.

Hi, guys. Thank you so much for taking the questions.

Taking a step back as you think about kind of your dual business model, where you have your your software licensing and then your own internal development.

A question for Amit just how let's say two three years from now how do you expect your internal pipeline to kind of drive your business. What are you going to be bringing it to phase two three and then out licensing.

You're going to bring them all the way to phase III and out licensing them I'm just trying to understand how does this evolve.

Understanding that your business is a bit in flux with some of the nuances between hosted software in outlet and software.

Blubs commentary on that thank you so much yes, yes.

Yes, Thanks, Kevin I think we talked a little bit about this before you can see we have.

Hey.

Rather.

Our larger pipeline than we had a few years ago, we have three more advanced programs towards the clinic, one more that's going to be in the clinic. We just said we're going to be.

Geoffrey Craig Porges: And we see lots of opportunity, as Rami alluded to, for that scale-up. But, of course, it does get down to every single contract and how it gets recognized. Got it. Thank you. Thank you. Our next question comes from the line of Evan Seigerman with BMO Capital America. Your line is open.

Expecting to file an IND for one of the now next cohort of programs next year. There are quite a number of those and so we have a lot of options.

Evan David Seigerman: All right, guys, thank you so much for taking the questions. Um, take a step back as you think about kind of your dual business model, where you have your, you know, your software licensing and then your own internal development. I guess, a question for Ramy, just how, say, two, three years from now, how do you expect your internal pipeline to kind of drive your business? Right?

The number of programs, we expect as we said some of those programs that will make sense to partner them.

Dan.

After phase one in some cases.

It may make sense to take them further.

And we're making sure that we are.

So we allow ourselves to have the opportunity to have that sort of flexibility. So I think youll see a mix of.

Ramy Farid: Are you going to be bringing these to phase two, three, and then out licensing them? Are you going to bring them all the way to phase three and out licensing them? I'm just trying to understand how this evolved, you know, understanding that your business is a bit in flux with some of the nuances between hosted software and outlicensed software. Love the commentary on that.

All the things that you said over the next several years.

And do you want to add.

Yes, sorry.

But it doesn't sound like.

Got it.

Like what's the what's the hurdle that you need to cover.

You know get over to bring something really forward into <unk>.

Mid phase trial and use your capital to advance that versus out licensing at phase one I'm just trying to think about how.

Ramy Farid: Thank you so much. Yeah. Yeah, thanks, Evan. I think, you know, we talked a little bit about this before. You can see we have a, you know, rather larger pipeline than we had a few years ago. We have these three more advanced programs, two in the clinic, and one more that's going to be in the clinic. We just said we're going to be expecting to file an IND for one of the now, you know, next cohort of programs next year. There are quite a number of those.

This become part of your business in a way that a physician wants them to handle schrodinger versus in the hands of someone else.

Yes, I mean I think.

And I'll start and maybe Jeff can add I mean, I think to some extent it depends.

On the target we believe that there are targets were.

When the first in the industry.

And there's a lot of interest and demand in the target and we don't necessarily need to take it to the clinic.

We will assess that on a case by case basis, but from a clinical development standpoint.

Ramy Farid: And so, we have a lot of options. That's a number of programs. We expect, as we said, some of those programs will make sense to partner with them, and after phase one, in some cases, it may make sense to take them further. And we're making sure that we allow ourselves to have the opportunity to have that sort of flexibility. So I think you'll see a mix of all the things that you said over the next several years. [inaudible] Please, please, please, guys.

We are very comfortable based on dose escalation, we've got two coming in at that about half, but I think for some programs whether it's an moe.

That will change the tide.

<unk> got lots of different potential indications you've got combination.

We do see that having a partner developed then to be very very helpful.

Ramy Farid: What's the hurdle that you need to overcome to bring something really forward into, you know, a mid-phase trial and use your capital to advance that versus out-licensing it at phase one? I'm just trying to think about how this becomes part of your business in a way that's efficient when it's in the hands of Schrodinger versus in the hands of someone else. Yeah, I mean, I think to some extent, I'll start and maybe Geoff can add, I mean, to some extent, it depends on the target. We believe that there are targets where when they're first in the industry, first in the world, and there's a lot of interest and demand for the target, you know, we don't necessarily even need to take them to the clinic. However, we, you know, we'll assess that on a case by case basis, but from a clinical development standpoint, we are very comfortable doing phase one dose escalation.

So I think it really depends on the target.

Whether we feel comfortable taking it until late in the first place.

Funding the program.

So.

If you want to add to that yes.

I think from economic standpoint, clearly, we're going to consider it costs.

We're also going to consider value is what's required to really create a lot of value from a program and then lastly, we're also going to consider what the industry requires.

In some cases, what the industry requires us 10 subjects with showing that you have a differentiated.

High profile safety profile in other cases, what the industry might require it.

Very large randomized phase II study, which we might not be inclined to do so I think on a case by case basis, we're going to consider all of those components to make a decision I don't think that we're required to make a blanket decision one way or another.

Karen Akinsanya: We've got two of those ongoing, and a third is about to start. But I think for some programs, when it's a multiple tumor type, you've got lots of different potential indications; you've got combinations to pursue. We do see that having a partner for that development could be very, very helpful. So I think it really depends on the target, whether we feel comfortable taking it into the facility in the first place but then expanding the program later on. So I don't know, Jeff, if you want to add to that.

Great. Thank you guys appreciate it.

Thanks, Kevin.

Our next question comes from the line of Scott.

As shown now with Keybanc your.

Your line is open.

Thanks for taking my question. So I just wanted to follow up on victims question on the software. So it seems like the wide guidance range has to do with.

Whether or not you can or how much of the book you can shift from on Prem to host David is that correct and would you be able to is it easier to shift.

Geoffrey Craig Porges: Yeah, Evan, I think from an economic standpoint, clearly we're going to consider costs. But we're also going to consider value. Is there what's required to really create a lot of value from the program?

These sorts of contracts.

From on Prem to hosted with larger clients mid sized clients or smaller clients just trying to get a sense of the scale here on this shift.

Geoffrey Craig Porges: And then lastly, we're also going to consider what the industry requires. Now, in some cases, what the industry requires is 10 subjects with showing that you have a differentiated PK profile or safety profile. In other cases, what the industry might require is a very large randomized phase 2B study, which we might not be inclined to do. So I think on a case-by-case basis, we're going to consider all of those components to make a decision. I don't think that we're inclined to make a blanket decision one way or another.

From on Prem to host it.

I just wanted to clarify something.

The.

The hosted on Prem shifted a small component.

All the trends in our business, it's what I call without deliberately but the biggest factor is whether we are business materializes in the form of multiyear contracts or single year conflict, because if we do our own frame annual renewal than all of the revenue is recognized almost all of the revenue.

In the year in which the quarter and most of it in that quarter.

Evan David Seigerman: Great. Thank you, guys. Appreciate it. Our next question comes from a line from Scott Schoenhau with KeyBang.

But if we do and if we do our multiyear on Prem even more of the revenue recognized in that quarter. So the biggest variable is the mix of duration of contracts. The second biggest most important variable is the size of contracts right Scott.

Scott Anthony Schoenhaus: Your line is open. Hi team. Thanks for taking my question. So I just wanted to follow up on Vikram's question about the software. So it seems like the wide guidance range has to do with whether or not you can or how much of the book you can shift from on prem to hosted. Is that correct?

Scaling a big contract for small contracts and then probably the least influential variable is the hosted.

Geoffrey Craig Porges: And would you be able to, is it easier to shift these sorts of contracts? from on-premises to hosted with larger clients, mid-sized clients, or smaller clients. Just trying to get a sense of the scale here on this shift from on-prem to hosted. I just want to clarify something. The hosted on-prem shift is a small component of the trends in our business. I mean, it's worth pointing out, I call it out deliberately, but the bigger factor is whether our business materializes in the form of multi-year contracts or single-year contracts. Because if we do an on-premises annual renewal, then all of the revenue is recognized or almost all of the revenue in the year in which that contract is signed, and most of it in that quarter.

Subprime shift.

But to the extent that there is a shift to hosted.

In the year in which that occurs it reduces the reported revenue growth rather than increasing them.

That does have some effect, but I don't want to convey that that's most of the effect and then just to answer the other that's absolutely right and just to just that.

Touch on the last part of your question.

Theres really no barrier to companies shifting.

For us to shift companies from on Prem to host it because it's not actually the software itself or the.

Geoffrey Craig Porges: But if we do a multi-year on-prem, even more of the revenue is recognized in that quarter. So the biggest variable is the mix of duration of the contract. The second biggest, most important variable is the size of the contract, whether we're scaling up big contracts or smaller contracts. And then, probably, the least influential variable is the hosted versus on-premises shift. But to the extent that there is a shift to hosted, in the year in which that occurs, it reduces the reported revenue growth rather than increases it. So that does have some effect, but I don't want to imply that that's most of the effect.

The compute engine that's being hosted its just the license server, which is a trivial piece of code that just controls.

The licensing.

It doesn't matter large small and it's completely under our control and there doesn't seem to be much resistance in fact, a lot of companies like it when when that's being managed because we can serve them better but just to be clear $99 99, 9% of the computation. That's being run is still on Prem, It's just a tiny little bit of code and when.

Ramy Farid: Yeah, and then just the answer to the other question: that's absolutely right. And just to touch on the last part of your question, there's really no barrier for companies to shifting, for us to shift companies from on-prem to hosted, because it's not actually the software itself or the compute engine that's being hosted. It's just the license server, which is a trivial piece of code that just controls the licensing. So this is, it doesn't matter whether it's large or small, and it's completely under control, and there doesn't seem to be much resistance.

That little bit of code is hosted in the whole entire contract is considered hosted that's not our role.

[laughter].

The rule.

Okay, I hope that helps.

Yeah. That's all very helpful can I just sneak in one follow up Jeff you mentioned about the opportunities in the smaller biopharma biotech.

Potentially developing is any of that baked into that growth range on the software side for this year.

We have taken.

Scott Anthony Schoenhaus: In fact, a lot of companies like it when that's being managed because we can serve them better. But just to be clear, 99.999% of the computation that's being run is still on-prem. It's just that tiny little bit of code, and when that little bit of code is hosted, then the whole entire contract is considered hosted. That's not our rule. You know, the rule.

A cautious approach to the outlook and the emerging companies, we haven't accounted for any recovery and capital availability or new companies showing up.

Let me give you a little bit more color.

What we saw in 2020 in 2021.

Was a lot of new customers too.

Geoffrey Craig Porges: Okay, I hope that helps. That's good. Yeah, that's all very helpful.

Newly capped relatively recently capitalized company, showing up and say we need to discover molecules again, our proprietary targets quickly.

Scott Anthony Schoenhaus: Can I just sneak in one follow-up? Geoff, you mentioned the opportunities in the smaller biopharm or biotech potentially developing. Is any of that baked into that growth range on the software side for this year? We have taken a cautious approach to the outlook for emerging companies. We haven't accounted for any recovery in capital availability or new companies showing up.

So.

Selling our software contracts with us that slowed down in 2022, and the natural flux amongst that population for our company.

More companies dropped out and came in so we are assuming.

Geoffrey Craig Porges: Let me give you a little bit more color. What we saw in 2020 and 2021 was a lot of new customers who were newly capitalized, relatively recently capitalized companies showing up and saying, we need to discover molecules against our proprietary targets quickly, and setting up software contracts with us. That slowed down in 2022, and the natural flux amongst that population of smaller companies meant more companies dropped out than came in. So we are assuming that that reverses itself, and we go back to 2020 or 2021. Great, thank you so much. Our next question comes from the line of Chad. Wiatrowski with T.D.

That reversed itself and we go back to 2020 or <unk> 21.

Great. Thank you so much.

Our next question comes from the line of Chad.

Why it pro ski with TV Cowen Your line is open.

Hey, everyone travel Mike <unk> on for Stephen.

I guess on the software revenues how does.

Ah validating expansion of an agreement.

For example in the fourth quarter.

How does that translate when youre looking into that tier two customer expansions and what does that specifically validate about the platform itself.

Chad Wiatrowski: Cowan. Your line is open. Hey, everyone. This is Chad Wiatrowski on behalf of Stephen Ma.

Yes, that's a great question.

Chad Wiatrowski: I guess on the software revenues, how does a validating expansion of an agreement like with Lilly, for example, in the fourth quarter translate when you're looking into tier two customer expansions? And what does that specifically validate about the platform itself? Yeah, that's a great question. We really see that as highly validating.

We really see that as highly validating.

And the beginning of.

An important trend of.

Adoption of our computational platform at scale by the pharma industry overall.

Ramy Farid: And the beginning of an important trend of adoption of our computational platform at scale by the pharma industry overall. It's extremely unlikely that, and it's not just Lilly, there are a number of customers that are, you know, you see what our KPI is for, for example, customers spending over $5 million. There are, we believe, a critical number of pharma companies that have scaled up their usage of the software and are using it at a scale that's approaching what we're doing internally as, again, the beginning of a trend. And it's extremely unlikely that it'll just be those handful of customers that will do that.

It's extremely unlikely that and it's not just literally there are a number of customers that are.

You thought you'd see what our Kpis for example, customer spending over $5 million. There is we believe a critical number of pharma companies that are scaled up their usage of the software and using it at a scale that is approaching what we're doing internally.

Again, as the beginning of a trend and it's extremely unlikely that it will just be those.

Handful of customers that we'll do that and the reason, we're saying that is sort of the obvious thing, but also the level of engagement from from the other company that are working their way up to that is really quite positive and we're sure that it's going to happen. It's a matter of as Jeff is saying is we're saying just sort of.

Ramy Farid: And the reason we're saying that is, you know, sort of the obvious thing, but also the level of engagement from the other companies that are working their way up to that is really quite positive. And we're sure that it's going to happen.

Ramy Farid: It's a matter of, as Jeff is saying, as we're saying, just sort of, you know, when exactly is it going to happen? Is it going to be in multiple stages where they go from one tier then to the next, you know, over a couple of years? That's where the uncertainty comes from. But it seems pretty clear that that trend that we're seeing, and, you know, we're obviously very encouraged by those handful of customers spending at that level. I should mention one other thing that's actually pretty, oh, sorry, go ahead, please.

They're there what exactly is it going to happen is it going to be in multiple stages, where they go from one tier then to the next over a couple of years, that's where the uncertainty comes from but but it seems pretty clear.

That trend that we're seeing and we're obviously very encouraged by those handful of customers spending at that level that that trend will continue.

I shouldn't say I should mention one other thing that's actually Oh, sorry go ahead. Please.

Chad Wiatrowski: No, I was just going to kind of pivot, you can, you can. Continue on that question. Yeah, I was just going to say one other really important thing, but I'll be very brief and let you ask the other question. It's important to point out that we continue to advance the platform. We have a very significant effort. We continue to make breakthroughs in science. And we expect that to continue as well. So that's another thing that will happen over the next. Several years, and really beyond, we will continue to see more and more breakthroughs in science that we think will continue to increase the value and the impact that software has. And I think that's something else that the industry will continue to react to. And so you have partnerships with NVIDIA and Google Cloud. And, for example, NVIDIA's BioNemo platform is an emerging marketplace for fine-tuned AI tools for drug discovery. Is there any type of incentive structure for you to launch software on these marketplaces?

No I was just going to kind of pivot you can you can.

Continue on that question I was just going to say one other really important thing and but I'll be very brief and let you ask the other question.

It's important to point out that we continue to advance the platform. We have a very significant effort. We continue to make breakthroughs in the science and we expect that to continue as well. So that's another thing that over the next several years and really beyond we will continue to see more and more breakthroughs in the science.

That we think will continue to.

Increase the value and the impact that the software, we're having I think thats something else that the industry will continue to react to.

And so you have partnerships with Nvidia and Google Cloud and like for example in video is bio Nemo platform.

It's an emerging marketplace for fine tuned AI tools for drug discovery is there any type of incentive structure for you to launch software on these marketplaces.

Ramy Farid: Is that a way that you could further monetize this growing capability? Yeah, we're not prepared to discuss that now, but I'm glad you brought up those collaborations. They're extremely important and long-standing, by the way. They aren't recent.

Is that a way that you could further monetize this growing capabilities.

Yes, we're not prepared to discuss that now, but I am glad you brought up those collaborations there extremely important and long standing by the way. These arent recent they've been in place for a long time and I am sure. We will continue to be able to leverage.

Ramy Farid: They've been in place for a long time, and I'm sure we will continue to be able to leverage those collaborations to benefit not just us but really benefit the whole industry. Thanks for the questions. Our next question comes from a line from Matt Hewitt with Craig Hallam Capital. Your line is open. Hi guys, this is Jack on behalf of Matt.

Those collaborations to benefit not just us, but really benefit the whole industry.

Thanks for the questions.

Our next question comes from the line of Matt Hewitt with Craig Hallum Capital Group. Your line is open.

Hi, guys. This is Jack on for Matt. Thanks for taking my question Firstly with the former at Bristol Myers in Iowa programme now being shown on your assets well that altered the timing of trials and how should we think about those assets and then my second question can you previously mentioned that Eli Lilly renewed and expand their software agreement are there any other large customer renewals.

Geoffrey Craig Porges: Thanks for taking my questions. Firstly, with the former Bristol Myers and Zio Labs programs now being solely Schrodinger assets, will that alter the timing of trials, and how should we think about those assets? And then my second question, when you previously mentioned that Eli Lilly renewed to expand their software agreement. Are there any other large customer renewals this year we should be monitoring? So, with respect to the first question about the BMS and PSY programs, obviously, we've described in the past that some of these are for commercial targeting, commercially validated targets, whereas others are more novel targets. And we have been looking at how we will incorporate these into our portfolio. Right now, there is no impact of those programs on our pursuit of clinical programs.

Here, we should be monitoring monitoring thanks.

Okay.

So with respect to the first question.

<unk>.

Obviously, we described in the past, but some of the data.

Targeting internationally validated target.

Others are more novel targets and we have been looking at how we will incorporate these into our portfolio right. Now there is no impact of that is called Bang on efficacy of clinical trials.

Ramy Farid: The three programs, or the two that are in the clinic, and the one that's about to enter, are all wholly owned, proprietary programs that came from our own efforts. We continue to look at some of the programs that have been returned as potential opportunities in the future, but we have not made a decision on that yet. And then with regard to your other question, we're, as I said, really engaged in a number of discussions with large companies and, as Geoff said, emerging companies. That's very important to keep in mind.

The three programs on the tubular in the clinics and the one that's about to enter.

All wholly owned and proprietary program.

Okay.

At some of the programs.

As potential opportunities in the future.

<unk> made a decision on that yet.

And then with regard to your other question.

We're as I said really.

<unk> engaged in a number of discussions with large companies and as Jeff said emerging company, that's very important to keep in mind, it's not just the top $10 20 pharma companies that have the potential to scale up their usage of the software. So the conversations are are encouraging we're certainly having them.

Ramy Farid: It's not just the top, you know, ten, twenty pharma companies that have the potential to scale up their usage of the software. So, the conversations are encouraging. We're certainly having them.

Ramy Farid: But at this point in the year, we're certainly not prepared to name the next company that's going to be, if you want to call it, the next Lilly. But, yeah, we're certainly having those conversations. Again, the floor is now open to your questions. To ask a question at this time, simply press the star followed by the number one on your telephone keypad.

But at this point in the year were certainly not prepared to name. The next company that that's going to be.

Do you want to call it the next Lilly, but but yes, but we're certainly having those conversations.

Understood. Thank you.

Yes.

Again the floor is now open for your questions to ask a question at this time simply press the star followed by the number one on your telephone keypad.

Michael Leonidovich Ryskin: Our next question comes from the line of Michael Ryskin, with Bank of America Securities. Your line is open. All right, thanks. This is Wolf on behalf of Mike.

Our next question comes from the line of Michael Riskin.

With Banc of America Securities. Your line is open.

Alright, Thanks as ball Bonder, Mike I appreciate taking the questions.

Unknown Caller: I appreciate you taking the question. So the multi-year renewal dynamic that you have going on in software is pretty well understood. But also, software only came in modestly above your guide in 3Q, even with these big renewal benefits, and your 4Q outlook is fairly well below. So, kind of backing out these timing and comp-related dynamics, have you seen any change in the underlying markets, or what's it going to take for software to get back to that 20% plus multi-year stack growth profile that I'm following? Yeah, okay.

Multiyear renewal dynamic that you have going on in software is pretty well understood. But also software only came in modestly above your guidance <unk>, even with these big renewal benefits in your <unk> outlook is fairly well below.

Backing out these timing and comp related dynamics have you seen some change in the underlying markets or what's it going to take her software to get back to that 20, 20% plus multi year SaaS growth profile.

Sure.

Geoffrey Craig Porges: No, I understand the question. So, there, we highlighted some of the blocks in smaller customers that have been affected by financing, consolidation in the industry, etc. And there is no doubt that that was a significant drag on what we reported in 2023. But we think that there is a path to more than offsetting that, and the growth opportunities in what I refer to as the sort of mid-cap companies, let's just say greater than 500,000 to 50 are there, more than offset the effect of that drag, if you like, in the smallest accounts. And we're not counting on those small accounts coming back, although theoretically, that's a possibility.

Yes, okay.

Is that the question.

So well.

We highlighted some of the blocks in the smaller customers.

That were have been affected by financing consolidation in the industry et cetera and.

There is no doubt that that was a significant.

All right.

Right way a drag on on what we reported in 'twenty to 'twenty three.

We think that there is a path to more than offsetting that.

And the growth opportunities in what I referred to with a sort of a mid cap companies.

Greater than 500000 to 50 odd there.

More than offset the effect of that drag if you like in the smallest accounts.

So I went up counting on those small accounts coming back.

Although theoretically that's a possibility.

Now we do.

Geoffrey Craig Porges: Now we deliberately called out the multi-year contribution in Q4 and specifically highlighted the Lilly deal because of the size of that and the impact that it had. That was something that we were working towards throughout the year, and there are a number of other multi-year agreements that we worked towards through the year, some of which became closed contracts and generated revenue, but others that we're still working on. So there is plenty of wood to chop and plenty of opportunity to drive things this year, but we're being pretty careful not to suggest that there's another Lilly out there right now because, clearly, that was a major opportunity for us that we pulled out in the fourth quarter. Ramy, do you want to add anything?

We called out the multiyear contribution in Q4.

Specifically highlighted the lowest deal.

Because of the size of that and the impact that it had.

That was something that we are working towards throughout the year and there are a number of other multiyear agreements that we work towards through the year some of which.

Became.

Closed contracts and generate revenue, but others that were still working on so.

There is plenty of wood to chop and plenty of opportunity to drive things to share, but we're being pretty careful not to suggest that there's another really out there right now.

Clearly that was a major opportunity for us that we called out in the fourth quarter, but no I think that's perfect yes.

Geoffrey Craig Porges: Yes. No, I think that's perfect. Okay, I got it. Thank you. And then on the other side of the business and drug discovery, I think the change in guidance methodology is pretty clear there. I'm not gonna ask you to guide to 25 or the far horizon, but given that there was kind of this inflection expected for drug discovery previously, should we now be thinking of more of a kind of steady ramp there barring any clear indications of milestones? Or just how should we think about the trajectory for that segment? I hope that we have conveyed the challenges we find in forecasting this segment in my absence of questions and prepared remarks. It is difficult because of the nature of this business and of our business there and the programs to estimate when programs will go ahead, particularly as they become more advanced. So, of course, as they become more advanced, the milestones become larger, and so the outsized effect becomes even greater.

Okay got it. Thank you and then on the other side of the business and drug discovery.

The change in guidance methodology is pretty clear, they're not going to ask you to guide to 25% for the out years, but given that there was kind of this inflection expected for drug discovery previously should we now be thinking of more of a kind of steady ramp there barring any clear indications of milestones or just how should we think about the trajectory for that segment.

Okay.

I hope we conveyed.

The challenges we filed in forecasting this segment.

And last is the question that our prepared remarks.

It is difficult because of the nature of this business.

Our business there in the programs.

Estimate when programs will go ahead, particularly as they become more dense so of course as they become more fast milestones become larger and so the outsized effect becomes even Greg we continue to be very confident that if we can.

Geoffrey Craig Porges: We continue to be very confident that if we keep initiating those programs and advancing them, and they continue to progress, there are opportunities for that revenue to grow. But the other way we are thinking about this, of course, is that we are shifting our capital allocations towards our proprietary programs. And as we advance our proprietary programs into the clinic, or even advance preclinical development, we believe, consistent with industry standards, that they're going to be worth more in partnering transactions. So we are planning that a number of our programs will be partnered in the foreseeable future, because obviously, we couldn't take everything in our very rich portfolio forward, and our therapeutics group is continuing to come up with promising new development opportunities. So we do think that there's a very significant revenue opportunity there, but given the methodology and the approach we're taking, we think it's prudent not to be guiding to the timing or value of those transactions.

Okay, initiating those programs and advancing them.

Continuing to progress, but there are opportunities for that revenue to grow but the other way. We are thinking about this of course is that we are shifting our capital allocation towards our proprietary programs and as we advance our proprietary programs into the clinic or even advanced preclinical development we believe.

With industry standards that they got to be worth more in partnering transactions. So.

Our planning.

A number of our programs will be partners in that in the foreseeable future because obviously, we couldnt take everything in a very rich portfolio already forward.

Our therapeutic shrimp is continuing to come up with promising new development opportunities. So.

Yes, there is.

We do think that there's a very significant revenue opportunity there.

But given the methodology and the approach we're taking we think it's prudent to me not guiding to the timing or value of those transactions.

Geoffrey Craig Porges: Got it. Thanks for the time. I'm showing no further questions at this time. That concludes today's call. You may now disconnect.

Got it.

I'm showing no further questions at this time.

That concludes today's call you may now disconnect.

Yeah.

I'm showing no further.