Molson Coors Beverage Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2023

There are 14 speakers on the call.

Operator

Thank you for standing by. Welcome to Schrodinger's Conference Call to review First Quarter 2023 Financial Results. My name is Joanna, and I will be your operator for today's call. Please be advised that this call is being recorded at the company's request. Now, I would like to introduce your host for today's conference, Ms.

Operator

Jaren Radin, Senior Vice President of Investor Relations and Corporate Affairs. Please go ahead.

Speaker 1

Thank you, and good afternoon, everyone. Welcome to today's call, during which we will provide an update on the company and review our Q1 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 are Rami Farooq, Chief Executive Officer Jeff Porges, Chief Financial Officer and Kara Nakhansanya, President of R and D Therapeutics. Following our prepared remarks, we'll open the call for Q and A.

Speaker 1

I'd like to remind you that during today's call, management will make statements related to our business are forward looking and are 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 2023, our quarter ending June 30, 2023, our strategic plans to accelerate the growth our software business and advance our collaborative and proprietary drug discovery programs, the timing of potential IND submissions and the initiation of clinical trials for our proprietary drug discovery programs, the clinical potential and favorable properties of our compounds, our expectations related to the use of our cash resources as well as our future operating expenses. These forward looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Actual results may differ materially from what we project today 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 Q for the quarter ended March 31, 2023.

Speaker 1

These forward looking statements represent our views only as of today, and we caution you that 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 reconciliations of these non GAAP measures to the most directly comparable GAAP measures. With that, I'd like to turn the call over to Ronnie.

Speaker 2

Thanks, Jaren, and thank you everyone for joining us today. We are very pleased with our strong start to the year. We reported quarterly revenue of $64,800,000 a 33% increase over the Q1 of last year. We strengthened our balance sheet significantly and we continue to advance our pipeline. Schrodinger has been pursuing the vision of conducting molecular discovery through integrating the accuracy of physics with the speed and scale of machine learning.

Speaker 2

This presented many challenges when we started 33 years ago, but we remain steadfast and eventually overcame them and even founded companies along our journey to help validate our approach. Today, we have many success stories that have validated our approach and we believe the benefits of using our platform are becoming irrefutable. We are thrilled with the recent progress of the drug discovery programs at companies we co founded, including Nimbus, Structure and Morphic. These programs which are now in the clinic serve as very strong validation of our unique approach and give us tremendous confidence in the potential of our own As you will hear from Karen, we have made very important progress with our pipeline this quarter. We now have 2 Phase 1 studies of our MALT-one inhibitor, SGR-fifteen oh five, underway and our IND submission for our CDC-seven inhibitor, SGR-two thousand nine hundred and twenty one is on track for the first half of this year.

Speaker 2

We're also making excellent progress across our collaborative programs, including advancing our SARS-one KRAS program to development candidate status. This program is partnered with BMS and contributed significantly to our reported drug discovery revenue in Our computational platform is the engine that enables the discovery of better therapeutics and novel materials faster and at lower cost compared to traditional methods. We continue to invest in our platform to push the frontiers of molecular discovery. Our initiatives include focusing on expanding a number of addressable targets. We, for example, recently published research showing how our computational methods can be used to refine AI generated protein structures to sufficiently high accuracy to be useful in physics enabled drug discovery.

Speaker 2

Our Q1 results illustrate the broad opportunities we have to create value from our unique computational platform. We reported strong contribution From our software business, significant milestones and new capital from our collaboration and successfully transitioned our proprietary portfolio into the clinic. With this strong start, we are well positioned to deliver on our objectives for the year. Before turning the call over to Jeff, I want to highlight that last week we published our inaugural corporate sustainability report. While we have always been committed to doing the right thing, This report represents a major milestone in formalizing our strategy around key ESG matters.

Speaker 2

I would also like to take the opportunity to express my deep gratitude for the dedication and hard work of all our exceptionally talented employees who are critical to achieving our mission. Jeff?

Speaker 3

Thank you, Rami, and good afternoon, everyone. Schrodinger had an excellent quarter in Q1. We made significant progress with our pipeline. We reported record quarterly revenue results. We showed continued positive trends in our expense and margin performance, and we strengthened our balance sheet materially.

Speaker 3

Our results were consistent with our overall expectations and financial guidance for the quarter, and we remain very positive about our business outlook for the year. Let me turn to the financial results for the quarter. Software revenue for the quarter was $32,000,000 which was just under $33,000,000 we reported in Q1 2022. Q1 2022 benefited from several large multiyear deals that were not up for renewal in Q1 2023. As expected, our software revenue declined compared to Q4, as we implemented the multi year and annual software contracts that were signed in the last few weeks of 2022.

Speaker 3

Drug Discovery revenue for the quarter was $32,600,000 and more than doubled compared to Q1 2022. $25,000,000 of the revenue was associated with the recognition of a milestone in our BMS collaboration, but reached development candidate status during the quarter. The rest of our Discovery revenue came from a variety of collaborations and programs. Total revenue was $64,800,000 and increased by 33% compared Q1 last year and by 14% compared to Q4 2022. Our results this quarter reflect the benefits of our balanced business model With software and discovery collaborations contributing similar revenue and driving total revenue to our highest ever quarterly total.

Speaker 3

Cost of revenue for the quarter was $19,000,000 and decreased by 8% compared to Q1 2022, but increased by 5% compared to Q4. The decrease year over year reflects the progression of our drug discovery business, reallocation of internal discovery teams from collaboration programs to proprietary programs and reduce royalty obligations in our software business. The overall gross margin increased to 71% this quarter compared to 58% in the same quarter of 2022. As we indicated previously, we expect our software gross margin to generally trend in line to slightly higher than last year and also anticipate that the profitability of our drug discovery business will trend positively, although it will bounce around widely from quarter to quarter depending on milestone payments and revenue recognition. Total operating expenses were $76,000,000 compared to $57,000,000 in the same quarter a year ago.

Speaker 3

R and D was $41,000,000 and increased by 46 From $28,000,000 in Q1 2022. The increase was driven by increased headcount as we added staff to support new programs and advance our existing programs into late preclinical and clinical development and as we reallocate our teams from collaborations to proprietary programs. This quarter, we are also absorbing the full cost of our Structural Biology Solutions organization, formerly known as XTAL, who have now been deployed exclusively to the characterization of protein structures for our internal drug discovery and collaboration activities. CRO expenses also increased year over year, driven by the progress of our existing programs and the addition of early undisclosed programs to our portfolio. Technology spending also increased as our portfolio broadened and advanced.

Speaker 3

We expect our R and D expenses to increase through the year as we progress the most advanced programs in our portfolio into clinical development and increase our investment into our earlier molecules and programs. We intend to outline the progress and potential of the most advanced programs and also discuss several of the earlier programs at our first Schrodinger Pipeline Day, we are planning for September this year. During the quarter, our sales and marketing expense was 9,000,000 and increased by 37% compared to the prior year Q1. The increase was mainly due to increased staffing to support our geographic expansion to commercialize into new industry verticals and to support our growing number of global accounts. Our sales and marketing expense is likely to follow Our G and A expense was $26,000,000 in Q1, which is an increase of 19% compared to Q1 2022.

Speaker 3

This increase was due to higher headcount, royalty obligations associated with the Nimbus distribution and accelerated amortization of intangible assets related to our XStyle acquisition in Q1 2022. Travel and lease expenses have also increased and we expect Quarterly G and A to be relatively stable through the balance of 2023. Overall, our loss from operations was $30,500,000 in Q1 compared to $28,600,000 in Q1 2022 and $28,500,000 in Q4 2022. Other income items were highly significant this quarter. We recognized a gain of $147,000,000 from Nimbus in Q1 as a result of the sale of the TYK2 program to Takeda Pharmaceuticals.

Speaker 3

We also reported a gain of $35,700,000 from the change in fair value of equity investments, which compares to a loss of 6,200,000 Q1 2022. This change reflects the mark to market valuation for our equity ownership in Structured Therapeutics and the market adjustment in our valuation of our ownership stake in Morphic. Other income was $2,900,000 and reflects the higher interest we are receiving on our investment portfolio. Overall, total other income was $186,000,000 We reported non cash tax expense of $26,400,000 As a result of these items, we reported net income of 129,000,000 and earnings per share of $1.75 on a fully diluted basis. We expect the tax liability that we reported in Q1 to be progressively reversed through the remaining quarters of the year as we incur expected operating losses in future quarters.

Speaker 3

Our non GAAP net loss for the quarter was $27,500,000 and cash used in operating activities during the quarter was 31,000,000 Based on the results and events in the quarter, our cash balance improved significantly. As of March 31, 2023, we reported cash resources and marketable securities of $532,000,000 compared to $456,000,000 at the end of December 2022. Subsequent to the end of We received the cash from our partner BMS for the development milestone and the second part of the distribution from Nimbus. While these payments were included in our Q1 2020 The cash added $61,000,000 to our cash and marketable securities balance subsequent to the end of the quarter. I'll now discuss our financial guidance.

Speaker 3

Our revenue guidance for the year is unchanged at 13% to 17% growth for software revenue and $70,000,000 to $90,000,000 for drug discovery revenue. We anticipate that Q2 software revenue will be in the range of $27,000,000 to $31,000,000 and expect the balance of our drug discovery The large customer renewal and new business opportunities that drive our incremental revenue. And for that reason, we do not forecast it being growth in the quarter. Our expectations for profitability and expense growth are unchanged, and we continue to expect our cash position at year end to be above our cash position at the start of the year. I'll now provide a brief update on corporate and business development activity.

Speaker 3

The last few months have seen remarkable progress for Schrodinger's partner companies. Our partners, Nimba Therapeutics, Morphic Therapeutics and Structured Therapeutics of all advances companies and its drug developers. In all three of these companies, Schrodinger was a founder, investor and drug discovery partner. They have all been long standing beneficiaries of our technology And our scientists had key roles in the discovery of their drug candidates that are in clinical development. We congratulate all three companies on their success and are proud of the contributions our staff and technology have made to their innovations.

Speaker 3

As equity holders in these companies, They remain significant sources of value for Schrodinger and we see opportunities for further success and value creation for each of them in the future. More importantly, the success of these companies provides even more validation for our technology platform. And it's the same technology platform and team that are building our proprietary portfolio. We have other equity investments in emerging companies in our portfolio now And we're actively considering more opportunities to invest our time, technology and capital into other entrepreneurial ventures. Beyond our new company activity, we continue to be engaged in discussions about new collaborations and specific program partnerships with companies across the industry.

Speaker 3

With the value of our inventions becoming even more apparent, we plan to be selective and thoughtful about our commitments to new partners. We have the resources and increasingly the capabilities to advance programs on our own account and we'll only partner them when we believe the terms match our assessment of the risk adjusted value of the program, including the value of the unique product attributes and features that our technology confers. We see many opportunities for our venture, corporate and business development activities to continue to add value to Schrodinger in 2023 and well into the future. I'll now turn the call over to Karen to discuss our collaborations and our pipeline.

Speaker 4

Thank you, Jeff, and good afternoon, everyone. We are really pleased with the advancements we've made so far this year across our pipeline of proprietary and collaborative programs. We continue to see success from our drug candidates discovered with our collaborators such as Morphix alpha-four beta-seven inhibitor. We currently have 9 collaborative programs in the clinic, highlighting our strong research team who work with our partners to design differentiated molecules, leveraging the full power of our computational platform. This quarter, we also reported that the SARS-one KMS precision oncology program, which we licensed to BMS as part of a multi target collaboration, has advanced to development candidate status.

Speaker 4

Now that our therapeutics team has transitioned the program to BMS for preclinical and clinical development, we have the opportunity to earn additional development, regulatory and commercial milestone payments as well as royalties on sales as the program progresses. We are continuing to work with BMS on The achievement of this significant milestone payment represents an important turning point for our therapeutics business and shows the value creation opportunity from our more recent drug discovery business development activities and partnered programs. Turning to our wholly owned programs, I'll start with an update on SGR1505, our MORTC1 inhibitor. Our clinical development team is pursuing a global development strategy to gather safety pharmacokinetics, pharmacodynamics and preliminary anti tumor We are pleased that dosing is underway in patients with advanced B cell malignancies. We've also begun dosing in a 2nd study of SGR1505 in healthy subjects.

Speaker 4

This study is designed to generate additional data on the profile of SGR1505 to support our clinical development plans. The healthy subject study includes drug drug interaction and food effect cohorts, And we plan to leverage the data from this pharmacology assessment to inform our ongoing and planned trials in B cell malignancies and potentially other indications. Moving to SGR-two thousand nine hundred and twenty one, our Cdc7 inhibitor, We are nearing the completion of our IND enabling studies and are on track for an IND submission to the FDA in the first half of this year. SGR-two thousand nine hundred and twenty one exhibits strong antitumor activity in multiple preclinical patient derived AML models independent of genetic drivers both as monotherapy and in combination with standard of care agents. Based on these data, we are planning to initiate a Phase 1 study in patients with relapsed refractory AML.

Speaker 4

Earlier this year, we selected our V1 development candidate SGR 3515, which has shown durable antitumor In preclinical models used to study more advanced V1 inhibitors. Clinical data from other companies' V1 programs has Provided encouraging evidence of clinical activity in several forms of cancer with high unmet need, including proof of Concept in Neutrolin and ovarian cancers. We are excited about the profile of SGR-three thousand five hundred and fifteen and believe it may offer advantages over prior inhibitors, including minimal drug drug interaction potential and optimized kinase selectivity. In addition, our translational work has progressed substantially with the identification of potential synthetic lethality relationships and sensitive tumor types to inform our Phase 1 trial design. We are continuing to characterize SGR-three thousand five hundred and fifteen as we move through IND enabling studies to enable an IND submission to the FDA next year.

Speaker 4

To date, We have primarily pursued programs and design challenges for targets with previously known protein structures. Following the integration of our structural biology capabilities in 2022, we are making important strides in obtaining novel protein structures to further support 1st in class product opportunities for targets with strong evidence of activity in humans. We are continuing to initiate new programs that we may elect to partner or advance independently to key inflection points. We have several undisclosed programs at various discovery stages in multiple areas, including oncology and immunology. In summary, we are very pleased with the progress we have made this quarter and expect continued advancements in 2023 across our pipeline of collaborative and proprietary programs.

Speaker 4

We are excited about the work we are doing to advance better medicines to patients, And we look forward to sharing more details about our work at Pipeline Day in late September. I will now turn it back over to Rami.

Speaker 2

Thank you, Karen. As you can hear, we are off to a strong start this year and are very well positioned to deliver on our goals for the year. We look forward to keeping you updated on our progress over the coming months. At this time, we'd be happy to take your questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. First question comes from Vikram Peerujit of Morgan Stanley. Please go ahead.

Speaker 5

Hi, good afternoon. Thanks for taking our questions. So we had 2 on drug discovery revenues. First, do you still hold $100,000,000 as a potential target for this line item? And then secondly, for the $70,000,000 to $90,000,000 guidance, Could you just remind us what the book end of this guidance come out of play?

Speaker 5

Thanks.

Speaker 6

Sure. Hi, Vikram. So yes, we still have the goal of achieving $100,000,000 this year. Our guidance is $70,000,000 to $90,000,000 We had a really good As you can see in Q1 with the achievement of the SaaS-one milestone from BMS and we see a number of paths to getting To certainly into the guidance range for the year, but also to get into that strategic goal. As we indicated when we provided the guidance, We are contemplating significant business development activity to achieve the goal, but it's not necessary to That we get a significant contribution to get to the low end of the guidance range by any means.

Speaker 6

So we are still maintaining that guidance. And as I indicated in my commentary though, the revenue outlook is going to be skewed towards the back half of the year just because of the timing of all the elements that contribute to that range.

Speaker 5

Understood. And if I could ask a follow-up on that question then. So if there is a point in the year at which you could revisit the guidance and think of Potentially moving it upwards, would it then be in the second half of the year when you'd have that clarity?

Speaker 6

Look, as I just suggested, Part of this is contingent upon progressing business development discussions. We don't want to signal how the cadence of those discussions or the timing. If there's something to announce, then we'll announce it. But then, of course, we'd aim to update our guidance on the quarterly call just as we would normally do Throughout the year.

Speaker 5

Okay, got it. Thank you.

Operator

Thank you. The next question comes from Michael Yee at Jefferies. Please go ahead.

Speaker 7

Hey, thanks guys. This is Yitchi on for Mike Owen. Thank you for the update. I have a question on software guidance for next quarter. So looking at previous years, The cadence and decrease in Q2 is not unusual.

Speaker 7

But just curious on the year to year guidance midpoint, which is just below your last Your revenue, which I believe was $30,000,000 for software. What are some factors here that might have driven this increase? And Do you have any comments on whether this might be the trend for the rest of the year, keeping in mind full year guidance is unchanged 13% to 17%. Thank

Speaker 8

you. Sure.

Speaker 6

So yes, thanks for the question. Our Q2 guidance reflects our current expectations for our renewals Continuing software contracts during the quarter. The outlook is affected by the size and number of contracts that are up for renewal in the period And the opportunities that those contracts present for significant increases in scale and value. Put simply, The customers in Q2 are relatively small in terms of their annual contract value. Because of this mix of The absence of Biotech IPO and follow on financing activity is most acutely felt in this period.

Speaker 6

The opportunities for growth in our business and also the alignment with our commercial activities are increasingly focused on the large global customers, The renewals for those customers are increasingly concentrated at the end of the year. Now to look Towards the end of the year, we are already actively discussing new $1,000,000 plus software contracts and increases in existing contracts With more than a dozen global biopharma customers, a number of these are likely to be multimillion dollar multiyear contracts. We also expect the large multiyear contract that we signed in Q4 of 2021 to be renewed in Q4 this year. It's these discussions and their potential that underpin our confidence in our guidance for the full year. Rami, is there anything would like to

Speaker 8

add? Thanks, Jeff. That was perfectly stated. I agree with all of that. I just want to emphasize that we're feeling Really confident about the outlook for the year given the stage of these discussions, the number of them and the enthusiasm We're seeing from our customers to really deploy our platform on their discovery programs at scale and that's the key.

Speaker 8

I think you know, I've been doing this for a long time and I can see a real clear shift in the nature of these discussions. I think it can actually be summarized by saying that companies are feeling more of a sense of urgency To fully deploy our technology on their programs and this is really giving us the increased confidence that these deals will close when they come up for renewal later in the year.

Speaker 7

Great. Thanks so much.

Operator

Thank you. The next question comes from David Lebowitz from Citi. Please go ahead.

Speaker 9

Thank you very much for taking my question. Specifically on cadence as we go through the year on the software side, I know that the Q2 and Q3 historically have been down quarters relatively speaking. You've given guidance for 2Q guidance for the full year as maintained. Does the balance of that, I guess, guided that Shift from 1Q to 2Q, is that something we think of as moving towards all towards the year end or just does some of that Growth find its way into 3Q.

Speaker 6

Thanks for the question, David. Look, we're not giving guidance For Q3 at this stage, but I think from my answer to the earlier question, you can tell that where We have line of sight to really substantial renewals in Q4. We do think there are opportunities in Q3 that Can contribute to the quarter and to give some of that growth, but at this stage, we're not updating, providing guidance for Q3. It's relatively early days, but we're very confident about the back half of the year and about our full year numbers.

Speaker 9

Would it be fair to say, I mean, every year, pretty much since 2019, the 4th quarter as a percentage of annual Has ticked up. Would it be fair to say that trend is probably going to continue in 'twenty three as well?

Speaker 6

That's definitely our sense. I don't want to give you a sort of firm sense of that percentage only because The conversations that I mentioned and that Rami alluded to, we're not sort of locking in a timing for those conversations coming to fruition. But I think as a general observation, I think you're correct. Agreed.

Speaker 10

Thank you for taking the questions.

Speaker 8

Thanks, Timna.

Operator

Thank you. Next question comes from Ben Ziegelman of BMO Capital Markets. Please go ahead.

Speaker 11

Hi guys. Thank you so much for taking my questions and congrats on all the progress on the quarter. So with some meaningful payouts from some of your partnerships, success With Morphis, success with some of your partners, I guess how are you thinking about capital allocation? Now that you've had some more revenues coming in, Are you more focused

Speaker 7

on acquiring assets that you can

Speaker 11

maybe utilize your platform for, clearly investing in R and D and your own capabilities?

Speaker 5

Do you think about that going forward? Thank you.

Speaker 6

Thanks for the question, Evan. I think we've signaled in my prepared remarks and In other comments that we're continuing to invest substantial capital into our platform. And My sense from being here for about 9 months now is that we're in a very dynamic environment with lots of opportunities To continue to prosecute this platform, but we're also very excited about the proprietary portfolio, in particular, that Karen outlined and the opportunities that we have there. So our first priority way above all others is to continue to invest in our platform and our own portfolio. And as you point out, very well capitalized to do that.

Speaker 6

Now we are Looking at additional opportunities, you can hear from Karen's comments about enabling more targets for our platform. We think that's a very sensible adjacency, and We're looking actively at putting capital there. And you've seen us already do that. I'm not telegraphing anything specific, but that's a logical Extension of the value creation from our platform. Beyond that, we're a well capitalized company in an industry Going through a fair amount of disruption right now, so we're always engaged in conversations, but it sort of I don't think that We're most excited about what we're doing ourselves on our own account.

Speaker 6

We think that we have a highly differentiated platform. So

Speaker 8

Yes, exactly. And I'll just add, We see ourselves, I think the industry sees us as the gold standard and really the leader in this space. And we very much intend to keep it that way by continuing to invest in the underlying science and continue to make the kinds of breakthroughs that are having such a huge impact on discovery projects.

Speaker 5

Excellent. Thank you for that. Appreciate it.

Speaker 8

Yes, thanks.

Operator

Thank you. The next question comes from Chris Shibutani at Goldman Sachs. Please go ahead.

Speaker 10

Yes. Thank you very much. Two questions. Jeff, since you've joined now for 9 months and had the chance Sort of look under the hood at the books and thinking about how contracts were structured and whatnot. I think historically what investors have struggled with is Trying to get an understanding of visibility about how that how you have visibility in the guidance get shaped and from the Q and A discussion from this earnings from this earnings report that seems to also be the case.

Speaker 10

Is there something that you're observing? I see that you're doing a poor quarters of rolling cumulative revenues for the company, but anything about the approach way your contracts are structured that you see as a potential way for you to strengthen your visibility and in turn improve ours. And then a second question, much congratulations on all the clinical development success of the collaborators, Morphic and Nimbus, certainly a tremendous outcome there. Is there some way that you can translate that in any quantifiable form? It clearly has a halo effect, but is there anything that somehow Can quantifiably generate greater conviction in your potential customers because see one, do one, but then is there an assurance that that can be replicated on the forward, I suppose would have to be in their mind.

Speaker 10

Just curious how you're thinking about presenting that beyond the obvious successes and the revenues to the collaboration? Thanks.

Speaker 6

Chris, I'll start off and talk a little bit about the visibility on software and the contracts. And then maybe Ravi could talk about the sort of secondary effects that we're seeing from things like Norfolk and how that's spilling over To our participation in the market overall industry. So first, starting up on the visibility of software, look, As you can imagine, Chris, would I prefer that we had like a very steady sort of through the year revenue ramp up? Yes, of course, that would make our lives and your lives easier and make everything more predictable. But The reality is that our current contracts and our revenue is heavily driven by those large customers and that they tend to make their step ups At the end of the year, we could go through the full year R and D cycle and say, do we like this, do we not like this?

Speaker 6

And then how much how many more people do we want to use it? How many more programs? How many more licenses? And that's what drives that step up.

Speaker 12

As you

Speaker 6

know, there are a number of different models for Software sales and licensing and revenue recognition, our contracts currently drive the revenue recognition that you're seeing and that sort of heavy skewing upfront, we are certainly Contemplating whether there are things that we can modify in our contracts, particularly as we're shifting more and more over to So cloud hosted relationships, that could alter that and to be kind of transparent, smooth it out a little bit. That's it's not something that we are ready to implement now, and that would entail some changes to our contracts and how we go to market. But Yes, I think that it would certainly it'd behoove us to take a hard look at that. So you can imagine that we're doing that. But again, To reiterate, there's a huge amount of excitement about our technology in those largest customers, and we're not going to hold up Realizing the potential of that excitement to change over to a certain format of contracting or revenue, I mean, our primary focus is Growing the business and capitalizing on these opportunities.

Speaker 7

Yes.

Speaker 6

Robert, do you want to talk about

Speaker 8

it more? Yes. I will add That everything that Jeff said was right, but also I think it's important to point out that we have gotten pretty good at predicting The quarters and we've been really, really good about meeting our guidance and we have a long track record of that. So I hope that we've gotten to a point where You can trust us when we talk about our guidance and what we see in future quarters and for the full year. Now I'm going to try and answer the question you asked the second question, Chris, but I won't go for too long in case I'm not answering your question and please tell me if I'm not.

Speaker 8

So It's really become I mean, we're really excited about this. The validation that we're getting from our partners, They go back quite a ways. We talked about Nimbus and Morphic and Structure, but also Our more recent collaborations and then of course our internal programs and we're that's pretty extensive, really overwhelming Set of validation that I think is unique for a platform company and we're really putting a big effort And to getting that story out, talking about them. And we're so fortunate to have fantastic partners that are not shy about participating in that. We have a lot of our partners Are joining us in those discussions and talking about our role and the technology and expertise that's been incredibly helpful as you can imagine.

Speaker 8

We have lots of internal lots of meetings at various venues in which we can present that data. And I can tell you that, And this is what I was saying before. There's no question that heads of research and pharma companies are noticing and it's really changing The nature of the discussions, I think this enthusiasm we're talking about is the direct result of us getting those really compelling Stories out there. Did I answer your question? Yes.

Speaker 10

Thank you, Sid. Yes, that was really helpful. I appreciate the perspective. Thanks, Ramy and Jeff.

Speaker 5

Good, good.

Operator

Thank you. Next question comes from Michael Ryskin at Bank of America. Please go ahead.

Speaker 12

Great. Thanks for taking the question, guys. A couple for me real quick. One is, in the past, you sort of given us a lot of color on your customer mix and the customer exposure. So Certainly recognize that a lot of it is biased towards larger pharma and larger biotech on the software side of things.

Speaker 12

I'm just wondering with the tail end of that, the smaller biotechs, are you seeing any change in terms of conversations in terms of tone just in the last couple of months? Obviously, there's been a lot of The debate there, it's a small part of your mix, but still I'm just curious if you see any deterioration in that part of your company.

Speaker 8

Pardon me? Jeff, do you want to take the first? Yes.

Speaker 6

Were you

Speaker 8

able to yes, and then if there's any yes.

Speaker 6

Sure. So just a comment on the customer mix. As we've said in the past, normal if I take the full year, the smaller biopharma companies is a relatively small component of our revenue. But to give you a little bit of context, the Q2 average customer size is Less than half of the full year average customer size. So that's just the mix of when customers are Renewing and those contracts are up.

Speaker 6

So that's why I highlighted in my earlier answer That the effect of emerging companies not being financed is most felt in that sort of quarter. Now what we're seeing is a sort of it's the absence of new, meaning we're not seeing A new company show up and say, okay, we want to sign a significant software contract and start our drug discovery activities. We're definitely in a position to have conversations with venture capitalists and with investors in some Companies that are almost virtual companies that would like to use our software to go after a particular target and we're engaged in those discussions, but the volume of them and the opportunities really aren't But the counter to that is that the existing customers are generally sticking. Increasingly, they've been using our technology for their drug discovery efforts for 2, 3, 4, 5 years, and they're not going away. It's just the absence of the new That is giving out contributed to that revenue guidance that I provided.

Speaker 6

So hopefully that helps answer your question.

Speaker 8

I think that's Okay. I think it was a second part. I think that was it, right? Or was there a second part?

Speaker 12

No, That was the first part. The second part is unrelated to that. The second question is sort of, if you look at your drug discovery revenue this year and you look at sort of The cash inflows you've recognized year to date in some of the comments you made about 2Q, really positive contributors to the balance sheet. As we think about drug discovery going forward, it should continue to be a meaningful and potentially growing part of the business. So You roll that together and you roll in you add in the gross profit dollars you generate from software.

Speaker 12

You're approaching the area where your free cash Breakeven, sometimes positive, sometimes a little bit negative, but starting this year and potentially going out, does that change your perspective in any way in terms of your rate of Spend on internal programs, if you think about it from a we are now essentially self cash sufficient.

Speaker 6

Yes. That's a really, really good question and certainly a question that we all think about quite a lot. Our conclusion, I think, from those discussions is that we have a unique technology, A unique time point and probably a unique opportunity to invest in our technology and invest in the programs And so you're right, if you kind of look ahead at some trajectories, You can kind of see the picture that you described, but I think that we If we fail to capitalize on all of those uniques that I described, then we will fail to achieve the value that we think that we can achieve and that we can So I think that we want to really take advantage of all of these opportunities.

Operator

Thank you. The next question comes from Gaurav Goparaju from Berenberg. Please go ahead.

Speaker 13

Hi. Hi. Thanks for taking my question. This is Annabel on for Gaurav. I have two questions.

Speaker 13

One, regarding Nimbus and Takeda, Given the $147,000,000 cash received, which was 4% of the $4,000,000,000 upfront payment by Takeda, should we assume a similar percentage The Schrodinger, on the potential $2,000,000,000 in sales based milestones, which would imply around $74,000,000 in cash if you if achieved? And then also to start the year, are you seeing more software revenue contribution from existing customers increasing their consumption or from new customers licensing software for the for the first time.

Speaker 6

Okay. Let me tackle the first question. Yes is the answer. We aren't assuming that we get the additional distribution for those last two revenue milestones. As you know, there are Significant revenue factors that would trigger those milestones.

Speaker 6

But yes, if those milestones occur, we would assume that the distribution is as you calculate Go ahead.

Speaker 8

Yes. No, no, no. Sorry, you go ahead.

Speaker 6

No, yes, go ahead.

Speaker 8

So really, really simple and it's what we've been saying. The answer The question about where the growth is coming from, absolutely coming more and more from existing customers increasing their usage of the And more and more from larger customers, which again is why we're seeing this shift to Q4.

Speaker 13

Great. Thank you so much.

Speaker 8

Yes,

Operator

thanks. Thank you. I am showing no further questions at this time. That concludes today's call. You may now disconnect.

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Earnings Conference Call
Molson Coors Beverage Q1 2023
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