What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-28 compared with 2022-02-24 · 399 added, 287 removed, 616 unchanged (53% of the section changed)

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generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 24, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2023 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

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Estimation of total costs to perform for Bristol-Myers Squibb Company collaboration and license agreement

As discussed in Note 3(c) to the consolidated financial statements, the Company recorded revenue of $13.7 million during the year ended December 31, 2021 related to the Bristol-Myers Squibb Company (“BMS”) collaboration and license agreement on a proportional performance basis.

The Company measures progress towards completion at the end of each reporting period based on measuring proportional performance.

As discussed in Note 3(c) to the consolidated financial statements, the Company recorded revenue of $22.1 million during the year ended December 31, 2022 related to research activities for the Bristol-Myers Squibb Company (“BMS”) collaboration and license agreement on a proportional performance basis.

The proportional performance is determined using input-based measurements of total costs of research activities incurred for the agreement relative to the total estimate of costs of research activities for the agreement.

The Company remeasures proportional performance at the end of each reporting period based on measuring progress towards completion.

We identified the estimation of total costs to perform research activities for the BMS collaboration and license agreement as a critical audit matter.

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We evaluated the Company’s estimate of costs to be incurred by:

— Comparing the estimated length of time required to complete the research plan to both industry publications and actual time incurred to complete the various phases for a selection of the Company’s other research programs

— Comparing the estimated internal employee hours and external contract research organizations costs to be incurred by phase to other research programs completed by the Company

—Attending the quarterly forecast review meetings to evaluate factors impacting total costs to perform research activities

— Inspecting minutes of Joint Steering Committee meetings between the Company and BMS to evaluate factors impacting total costs to perform research activities and compared it with the outcome of the inquiries stated above

Identification of performance obligations in complex or unusual software revenue arrangements

As discussed in Note 3(a) to the consolidated financial statements, the Company reported on-premise software revenue of $74.6 million and hosted software revenue of $11.1 million for the year ended December 31, 2021.

— comparing the estimated length of time required to complete the research plan to both industry publications and actual time incurred to achieve development candidate for a selection of the Company’s proprietary drug discovery programs

—comparing the estimated internal employee hours and external contract research organizations costs to be incurred to historical actual results for the BMS collaboration and license agreement

—attending the fourth quarter forecast review meeting and inspecting quarterly meeting minutes to evaluate factors impacting total costs to perform research activities

—inspecting minutes of Joint Steering Committee meetings between the Company and BMS to evaluate factors impacting total costs to perform research activities and comparing them with the outcome of the inquiries stated above

Identification of performance obligations in complex or unusual revenue arrangements

As discussed in Notes 3(a) and 3(b) to the consolidated financial statements, the Company reported on-premise software revenue of $84.5 million, hosted software revenue of $14.9 million, and drug discovery revenue of $45.4 million for the year ended December 31, 2022.

As discussed in Note 3(d), the Company’s contracts with customers often include promises to transfer multiple software products and services, including training, professional services, technical support services, and rights to unspecified updates.

At contract inception, the Company assesses the products and services promised within each contract to identify distinct performance obligations that should be accounted for separately.

We identified the determination of distinct performance obligations in complex or unusual software revenue arrangements as a critical audit matter.

There was subjective auditor judgment in evaluating whether promised products and services in complex or unusual software revenue arrangements are separate performance obligations or inputs into a combined performance obligation.

At contract inception, the Company assesses the products and services promised within each contract to determine distinct performance obligations that should be accounted for separately.

We identified the determination of distinct performance obligations in complex or unusual revenue arrangements as a critical audit matter.

There was subjective auditor judgment in evaluating whether promised products and services in complex or unusual revenue arrangements are separate performance obligations or inputs into a combined performance obligation.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the software revenue process, including controls related to the determination of distinct performance obligations.

For a selection of complex or unusual software revenue arrangements, we evaluated whether the performance obligations identified by the Company were capable of being distinct in the context of the contract by obtaining an understanding of the Company’s product and service offerings, obtaining and inspecting contracts, and evaluating the application of the revenue recognition accounting guidance for the selected contract .

We evaluated the design and tested the operating effectiveness of certain internal controls related to the revenue process, including controls related to the determination of distinct performance obligations.

For a selection of complex or unusual revenue arrangements, we evaluated whether the performance obligations identified by the Company were capable of being distinct in the context of the contract by obtaining an understanding of the Company’s product and service offerings, obtaining and inspecting contracts, and evaluating the application of the revenue recognition accounting guidance for the selected contract.

We have served as the Company’s auditor since 2010.

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and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, because of the effect of the material weakness, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements), and our report dated February 28, 2023 expressed an unqualified opinion on those consolidated financial statements.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

A material weakness was identified and included in management's assessment related to a deficiency in the design of a control in the Company's revenue process to determine whether performance milestones in a newly executed drug discovery arrangement were probable of achievement and the constraint on variable consideration in the form of milestone payments can be removed.

The deficiency was the result of ineffective risk assessment as the Company’s existing controls were designed insufficiently to identify a change in timing of performance milestones in the newly executed contract.

The material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2022 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.

Basis for Opinion

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A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We have served as the Company’s auditor since 2010.

Portland, Oregon

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

December 31, 2021

December 31, 2020

Assets December 31, 2022 December 31, 2021

Current assets:

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Accounts receivable, net of allowance for doubtful accounts of $ 125 and $ 108

55,953 31,744

Unbilled and other receivables, net for allowance for unbilled receivables of $ 100 and $ 30

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Equity investments 25,683 43,167

Goodwill 4,791 —

Intangible assets, net 587 —

Right of use assets 105,982 75,384

Other assets 3,311 2,851

Total assets $ 688,587 $ 756,487

Liabilities and Stockholders’ Equity

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Authorized 10,000,000 shares;

zero shares issued and

outstanding at December 31, 2021 and December 31, 2020, respectively

zero shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively

Common stock, $ 0.01 par value.

Authorized 500,000,000 shares;

61,834,515 and 60,713,534 shares issued and outstanding at December 31, 2021

and December 31, 2020, respectively

62,163,739 and 61,834,515 shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively

Limited common stock, $ 0.01 par value.

Authorized 100,000,000 shares;

9,164,193 shares issued and outstanding at December 31, 2021 and

December 31, 2020, respectively

9,164,193 shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively

Additional paid-in capital 828,700 786,964

Accumulated deficit ( 379,138 ) ( 229,952 )

Accumulated other comprehensive (loss) income

Accumulated other comprehensive loss ( 2,382 ) ( 651 )

Total stockholders’ equity of Schrödinger stockholders 447,894 557,071

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Year Ended December 31,

2022 2021 2020

Software products and services $ 135,578 $ 113,236 $ 92,530

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Total cost of revenues 79,933 72,311 44,623

Gross profit 101,022 65,620 63,472

Operating expenses:

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Loss from operations ( 146,817 ) ( 111,443 ) ( 60,916 )

Other income:

(Loss) gain on equity investments

Other income (expense):

Gain (loss) on equity investments 11,825 ( 1,781 ) 4,108

Change in fair value ( 18,084 ) 11,359 28,263

Interest income

Total other income

Other income 3,950 1,057 2,253

Total other (expense) income ( 2,309 ) 10,635 34,624

Loss before income taxes ( 149,126 ) ( 100,808 ) ( 26,292 )

Income tax expense (benefit)

Income tax expense 63 411 345

Net loss ( 149,189 ) ( 101,219 ) ( 26,637 )

Net loss attributable to noncontrolling interest ( 3 ) ( 826 ) ( 2,174 )

Net loss attributable to Schrödinger common and

limited common stockholders

Net loss per share attributable to Schrödinger

common and limited common stockholders, basic and diluted:

Weighted average shares used to compute net loss

per share attributable to Schrödinger common and

limited common stockholders, basic and diluted:

Net loss attributable to Schrödinger common and limited common stockholders $ ( 149,186 ) $ ( 100,393 ) $ ( 24,463 )

Net loss per share attributable to Schrödinger common and limited common stockholders, basic and diluted:

$ ( 2.10 ) $ ( 1.42 ) $ ( 0.41 )

Weighted average shares used to compute net loss per share attributable to Schrödinger common and limited common stockholders, basic and diluted:

71,173,419 70,594,950 60,024,658

See accompanying notes to consolidated financial statements.

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Year Ended December 31,

Net loss attributable to Schrödinger common and

limited common stockholders

2022 2021 2020

Net loss attributable to Schrödinger common and limited common stockholders $ ( 149,186 ) $ ( 100,393 ) $ ( 24,463 )

Changes in market value of investments, net of tax:

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Series A preferred

Limited common

Common stock Limited common

comprehensive

stockholders’

loss (income)

equity (deficit)

Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount capital deficit loss (income) interest equity (deficit)

Balance at December 31, 2019

Change in unrealized

loss on marketable

Issuances of Series E

preferred stock, net

of issuance costs

Issuances of common

stock upon stock

option exercise

73,795,777 $ 109,270 39,540,611 $ 22,000 47,242,235 $ 19,844 29,468,101 $ 9,840 134,704,785 $ 30,626 6,121,821 $ 61 — $ — $ 11,655 $ ( 105,096 ) $ 16 $ 41 $ ( 93,323 )

Change in unrealized gain on marketable securities

— — — — — — — — — — — — — — — — 301 — 301

Issuances of common stock upon stock option exercises

— — — — — — — — — — 1,398,177 14 — — 4,169 — — — 4,183

Stock-based compensation — — — — — — — — — — — — — — 10,545 — — — 10,545

Contributions by

noncontrolling interest

Issuances of common stock upon initial public offering, net of issuance costs of $ 22,667

— — — — — — — — — — 13,664,704 136 — — 209,497 — — — 209,633

Issuances of common stock upon follow-on offering, net of issuance costs of $ 20,901

— — — — — — — — — — 5,250,000 53 — — 325,547 — — — 325,600

Conversion of convertible preferred stock into common stock

( 73,795,777 ) ( 109,270 ) ( 17,844,124 ) ( 9,928 ) — — — — ( 134,704,785 ) ( 30,626 ) 30,278,832 303 — — 149,521 — — — 149,824

Exchange of convertible preferred stock into limited common stock

— — ( 21,696,487 ) ( 12,072 ) ( 47,242,235 ) ( 19,844 ) ( 29,468,101 ) ( 9,840 ) — — — — 13,164,193 132 41,624 — — — 41,756

Conversion of limited common stock into common stock

— — — — — — — — — — 4,000,000 40 ( 4,000,000 ) ( 40 ) — — — — —

Contributions by non-controlling interest

— — — — — — — — — — — — — — — — 2,137 2,137

Net loss — — — — — — — — — — — — — — — ( 24,463 ) — ( 2,174 ) ( 26,637 )

Balance at December 31, 2020

Change in unrealized

loss on marketable

Issuances of common

stock upon stock

option exercise

— — — — — — — — — — 60,713,534 607 9,164,193 92 752,558 ( 129,559 ) 317 4 624,019

Change in unrealized loss on marketable securities

— — — — — — — — — — — — — — — — ( 968 ) — ( 968 )

Issuances of common stock upon stock option exercises

— — — — — — — — — — 1,120,981 11 — — 7,916 — — — 7,927

Stock-based compensation — — — — — — — — — — — — — — 26,490 — — — 26,490

Issuances of common

stock upon initial

public offering, net

of issuance costs

Issuances of common

stock upon follow-on

offering, net of

issuance costs of

Conversion of

preferred stock into

Contributions by non-controlling interest

— — — — — — — — — — — — — — — — 836 836

preferred stock into

limited common

Conversion of limited

common stock into

Contributions by

non-controlling interest

Net loss — — — — — — — — — — — — — — — ( 100,393 ) — ( 826 ) ( 101,219 )

Balance at December 31, 2021

Change in unrealized

loss on marketable

Issuances of common

stock upon stock

option exercise

— — — — — — — — — — 61,834,515 618 9,164,193 92 786,964 ( 229,952 ) ( 651 ) 14 557,085

Change in unrealized loss on marketable securities

— — — — — — — — — — — — — — — — ( 1,731 ) — ( 1,731 )

Issuances of common stock upon stock option exercises

— — — — — — — — — — 329,224 4 — — 2,106 — — — 2,110

Stock-based compensation — — — — — — — — — — — — — — 39,630 — — — 39,630

Contributions by

non-controlling interest

Contributions by non-controlling interest

— — — — — — — — — — — — — — — — — —

Net loss — — — — — — — — — — — — — — — ( 149,186 ) — ( 3 ) ( 149,189 )

Balance at December 31, 2022

— $ — — $ — — $ — — $ — — $ — 62,163,739 622 9,164,193 92 828,700 ( 379,138 ) ( 2,382 ) 11 447,905

See accompanying notes to consolidated financial statements.

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Year Ended December 31,

2022 2021 2020

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash (used in) provided by

operating activities:

Loss (gain) on equity investments

Net loss $ ( 149,189 ) $ ( 101,219 ) $ ( 26,637 )

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

(Gain) loss on equity investments ( 11,825 ) 1,781 ( 4,108 )

Noncash revenue from equity investments — ( 107 ) ( 397 )

Fair value adjustments 18,084 ( 11,359 ) ( 28,263 )

Depreciation and amortization 4,344 2,847 3,658

Stock-based compensation 39,630 26,490 10,545

Noncash research and development expenses — 811 2,137

Noncash investment accretion

Noncash investment amortization 629 5,270 646

Loss on disposal of property and equipment 19 140 —

Decrease (increase) in assets:

(Increase) decrease in assets, net of acquisition:

Accounts receivable, net ( 23,697 ) ( 321 ) ( 12,747 )

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Prepaid expenses and other assets ( 7,067 ) ( 1,121 ) 187

(Decrease) increase in liabilities:

Increase (decrease) in liabilities, net of acquisition:

Accounts payable 1,179 ( 411 ) 4,882

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Proceeds from sale of equity investments — 15,735 —

Acquisition, net of acquired cash ( 6,427 ) — —

Purchases of marketable securities ( 271,472 ) ( 414,802 ) ( 519,668 )

Proceeds from sale and maturity of marketable securities

Net cash used in investing activities

Proceeds from maturity of marketable securities 364,711 392,747 138,772

Net cash provided by (used in) investing activities 90,023 ( 16,812 ) ( 381,721 )

Cash flows from financing activities:

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Issuances of common stock upon follow-on public offering, net — — 325,600

Issuances of Series E preferred stock, net

Issuances of common stock upon stock option exercise

Issuances of common stock upon stock option exercises 2,110 7,927 4,183

Contribution by noncontrolling interest — 25 —

Deferred offering costs

Net cash provided by financing activities 2,110 7,952 541,274

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Supplemental disclosure of non-cash investing and financing activities

Accrued deferred offering costs

Purchases of property and equipment in accounts payable 169 705 8

Acquisitions of right of use assets in exchange for lease obligations

Right of use assets recognized on adoption

Purchases of property and equipment in accrued liabilities 293 — —

Acquisition of right to use assets, contingency resolution 1,513 —

Acquisitions of right of use assets 34,763 71,054 2,709

Acquisition of lease liabilities 34,430 71,054 —

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

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For the years ended December 31, 2022, 2021, and 2020

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

(in thousands, except for share and per share amounts and note 3(c))

(1) Description of Business

Schrödinger, Inc.

(the “Company”) has developed a differentiated, physics-based software platform that enables discovery of high-quality, novel molecules for drug development and materials applications more rapidly, at lower cost, and with, the Company believes, a higher likelihood of success compared to traditional methods.

The Company sells its software to biopharmaceutical and industrial companies, academic institutions, and government laboratories.

(the “Company”) has developed a differentiated, physics-based computational platform that enables discovery of high-quality, novel molecules for drug development and materials applications more rapidly and at a lower cost, compared to traditional methods.

The Company's software platform is licensed by biopharmaceutical and industrial companies, academic institutions, and government laboratories around the world.

The Company also applies its computational platform to a broad pipeline of drug discovery and development programs in collaboration with biopharmaceutical companies.

In addition, the Company uses its platform to advance a pipeline of internal drug discovery programs.

On February 10, 2020, the Company completed an initial public offering (“IPO”), in which the Company issued and sold 11,882,352 shares of its common stock at a public offering price of $ 17.00 per share.

The underwriters fully exercised their option to purchase an additional 1,782,352 shares of the Company’s common stock at the public offering price less underwriting discounts.

The Company raised $ 209.6 million in net proceeds after deducting underwriting discounts and commissions and offering expenses payable by the Company.

Immediately prior to the closing of the IPO, preferred stockholders voluntarily exchanged 98,406,823 shares of preferred stock for an aggregate of 13,164,193 shares of limited common stock.

In addition, upon the closing of the IPO, the remaining 226,344,686 shares of preferred stock automatically converted into an aggregate of 30,278,832 shares of common stock.

On August 17, 2020, the Company completed a follow-on public offering, in which the Company issued and sold 4,500,000 shares of its common stock at a public offering price of $ 66.00 per share.

The underwriters fully exercised their option to purchase an additional 750,000 shares of the Company’s common stock at the public offering price less underwriting discounts.

The Company raised $ 325.6 million in net proceeds after deducting underwriting discounts and commissions and offering expenses payable by the Company.

In addition, a stockholder of the Company sold 500,000 shares of common stock.

The Company did no t receive any proceeds from the sale of shares of common stock by the selling stockholder.

In addition, the Company uses its platform to advance a pipeline of partnered and wholly-owned drug discovery programs, which the Company refers to as its proprietary drug discovery programs.

(2) Significant Accounting Policies

Recently Issued Accounting Pronouncements

In January 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No.

2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) —Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 , which clarifies the accounting related to equity investments and derivatives.

This guidance was effective for the Company in the first quarter of 2021 on a prospective basis, and early adoption was permitted.

The Company adopted this new standard effective January 1, 2021 with no material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU No.

2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Topic 350) – Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract .

This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

The standard is effective for annual periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021, with early adoption permitted.

The Company adopted this new standard effective January 1, 2021 with no material impact on its consolidated financial statements.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments-Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments , which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.

2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates.

It also eliminates the concept of other-than-temporary impairment and requires credit losses related to certain available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities.

These changes generally result in earlier recognition of credit losses.

The Company adopted this new standard effective January 1, 2021 with no material impact on its consolidated financial statements.

In October 2021, the FASB issues ASU No.

2021-08, Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which requires the measurement and recognition of contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standard Codification (“ASC”) 606, Revenue from Contracts with Customers (Topic 606).

(a) Recently Issued Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No.

2021-08, Business Combinations – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("Topic 805"), which requires the measurement and recognition of contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers ("Topic 606").

This update replaces the existing guidance requiring contract assets and contract liabilities to be measured and recognized at fair value.

The standard is effective on a prospective basis for annual periods beginning after December 15, 2022, including interim periods within the fiscal year, with early adoption permitted.

The Company plans to early adopt this new standard effective January 1, 2022 and does not expect a material impact on its consolidated financial statements.

Basis of Presentation and Use of Estimates

The Company early adopted this new standard effective January 1, 2022 with no material impact on its consolidated financial statements.

(b) Basis of Presentation and Use of Estimates

The preparation of financial statements in conformity with U.S.

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GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period.

Significant estimates include the assumptions used in the allocation of revenue, estimates regarding the progress of completing performance obligations under collaboration agreements, and the valuation of stock-based compensation.

Significant estimates include the assumptions used in the allocation of revenue and estimates regarding the progress of completing performance obligations under collaboration agreements.

Actual results could differ from those estimates, and such differences may be material to the consolidated financial statements.

Principles of Consolidation

The Company’s consolidated financial statements include the accounts of Schrödinger, Inc., its wholly owned subsidiaries, and its variable interest entity.

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The Company accounts for investments over which it has significant influence, but not a controlling financial interest, using the equity method.

Cash and Cash Equivalents and Marketable Securities and Restricted Cash

(d) Cash and Cash Equivalents and Marketable Securities and Restricted Cash

Included in cash and cash equivalents were cash equivalents of $ 78,066 and $ 90,477 as of December 31, 2022 and 2021, respectively, which consisted of money market funds and certificates of deposit, and are stated at cost, which approximates market value.

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Restricted cash consists of letters of credit held with the Company’s financial institution related to facility leases and is classified as current in the Company’s balance sheets based on the maturity of the underlying letters of credit.

Accounts Receivable

Additionally, funds received from certain grants are restricted as to their use and are therefore classified as restricted cash.

(e) Accounts Receivable

Accounts receivable are stated at original invoice amount less an allowance for doubtful accounts.

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Interest is not charged on accounts receivable.

Fair Value of Financial Instruments

(f) Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to their short maturities.

Property and Equipment

(g) Property and Equipment

Property and equipment are stated at cost.

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Property and equipment are reviewed for impairment as discussed below under Accounting for the Impairment of Long‑Lived Assets.

Accounting for the Impairment of Long‑Lived Assets

Long-lived assets, such as property and equipment subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

( h) Goodwill

Goodwill represents the excess purchase price over the fair value of net assets acquired which is not allocable to separately identifiable intangible assets.

Other identifiable intangible assets are separately recognized if the intangible asset is obtained through contractual or other legal right or if the intangible asset can be sold, transferred, licensed or exchanged.

Goodwill is not amortized but tested for impairment at least annually, and more frequently if events or circumstances indicate the carrying amount more likely than not exceeds the fair value.

We have the option to qualitatively or quantitatively assess goodwill for impairment.

We test our goodwill for impairment on October 1 of each year.

In 2022, we evaluated our goodwill using a qualitative process.

If the qualitative factors determine that it is more likely than not that the fair value exceeds the carrying amount, goodwill is not impaired.

If the qualitative assessment determines it is more likely than not the fair value is less than the carrying amount, we would further evaluate for potential impairment.

We have deemed our goodwill not impaired for the year ended December 31, 2022.

(i) Accounting for the Impairment of Long‑Lived Assets

Long-lived assets, such as property and equipment and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

If circumstances require a long-lived asset or asset group be tested for potential impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value.

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No impairment was identified for the years ended December 31, 2022, 2021, and 2020.

(ij Warranties

The Company typically warrants that its products will perform in a manner consistent with the product specifications provided to the customer for a period of 30 days.

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Therefore, no liabilities for such obligations are presented in the consolidated financial statements.

Concentrations

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade receivables.

(k) Concentrations

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade receivables and contract assets, which represent contracted unbilled receivables.

The Company does not require customers to provide collateral to support accounts receivable.

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The determination of a customer’s ability to pay requires judgment, and failure to collect from a customer can adversely affect revenue, cash flows, and results of operations.

As of December 31, 2022, one customer accounted for 26 % of total accounts receivable.

As of December 31, 2021, three customers accounted for 17 %, 15 %, and 11 % of total accounts receivable, respectively.

As of December 31, 2020, two customers accounted for 17 % and 14 % of total accounts receivable, respectively.

As of December 31, 2022, two customers accounted for 23 % and 17 % of total contract assets, respectively.

As of December 31, 2021, three customers accounted for 27 %, 18 %, and 17 % of total contract assets, respectively.

For the year ended December 31, 2022, one customer accounted for 16 % of total revenues.

For the year ended December 31, 2020, no customer accounted for more than 10 % of total revenues.

For the year ended December 31, 2021, one customer accounted for 14 % of total revenues.

For the year ended December 31, 2020, no customers accounted for more than 10% of total revenues.

(l) Royalties

Royalties represent a component of cost of revenues and consist of royalties paid to owners of intellectual property used in or bundled with the Company’s software.

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Royalty expense was $ 9,191 , $ 9,826 , and 7,663 for the years ended December 31, 2022, 2021, and 2020, respectively.

Software Development Costs

(m) Software Development Costs

Costs to develop new software products and substantial enhancements to existing software products are expensed as incurred.

Historically, the Company has not capitalized any software development costs because the software development process was essentially completed concurrent with the establishment of technological feasibility.

Research and Development and Advertising

(n) Research and Development and Advertising

Research and development and advertising costs are expensed as incurred.

The Company did not incur any significant advertising costs in 2021, 2020, or 2019.

Stock‑Based Compensation

The Company did not incur any significant advertising costs in 2022, 2021, and 2020.

(o) Stock‑Based Compensation

The Company calculates stock‑based compensation expense utilizing fair value–based methodologies and recognizes expense over the vesting period of such awards.

(p) Commissions

Commissions represent a component of sales and marketing expense and consist of the variable compensation paid to the Company’s sales representatives.

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Commission expense was $ 2,291 , $ 1,829 , and $ 1,362 in 2022, 2021, and 2020, respectively.

(q) Income Taxes

The Company records deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of the assets and liabilities.

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Interest and penalties accrued on unrecognized tax benefits are included within income tax expense in the consolidated financial statements.

Comprehensive Loss

(r) Comprehensive Loss

Comprehensive loss includes net loss and changes in equity related to changes in unrealized gains or losses on marketable securities.

Equity Investments

In the normal course of business, the Company has entered, and may continue to enter, into collaboration agreements with private companies to perform drug design services for such companies in exchange for equity ownership stakes in such companies.

(s) Equity Investments

In the normal course of business, the Company has entered, and may continue to enter, into collaboration agreements with companies to perform drug design services for such companies in exchange for equity ownership stakes in such companies.

If it is determined that the Company has control over the investee, the investee is consolidated in the financial statements.

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For further information regarding the Company’s equity investments, see Note 6, Fair Value Measurements, Note 11, Noncontrolling Interest, and Note 13, Equity Investments.

Net (Loss) Income per Share Attributable to Common and Limited Common Stockholders

(t) Net Loss per Share Attributable to Common and Limited Common Stockholders

The outstanding equity of the Company consists of common stock and limited common stock.

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Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for promised goods or services.

The Company’s performance obligations are satisfied either over time or at a point in time.

The following table illustrates the timing of the Company’s revenue recognition:

Company’s performance obligations are satisfied either over time or at a point in time, which can result in different revenue recognition patterns.

The following table illustrates the timing of the Company’s revenue recognition patterns:

Year Ended December 31,

2022 2021 2020

Software products and services – point in time 47.3 % 55.5 % 55.0 %

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Drug Discovery – over time 16.3 14.6 7.7

(a) Software Products and Services

The Company enters into contracts that can include various combinations of licenses, products and services, some of which are distinct and are accounted for as separate performance obligations.

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Software maintenance .

Software maintenance includes technical support, updates, and upgrades.

Software maintenance includes technical support, updates, and upgrades related to our on-premise software licenses.

Software maintenance revenue is considered to be a separate performance obligation and is recognized ratably over the term of the arrangement.

Professional services .

Professional services, such as training, technical support, installation, or assisting customers with modeling, generally are not related to the core functionality of the Company’s software and are recognized as revenue when resources are consumed.

Professional services include training, technical setup, installation or assisting customers with modeling and structural biology services, where the Company uses its software to perform tasks such as virtual screening and homology modeling on behalf of the Company’s customers.

These services are generally not related to the core functionality of the Company’s software and are recognized as revenue when resources are consumed.

The Company has historically estimated project status with relative accuracy, although a number of internal and external factors can affect such estimates, including labor rates, utilization and efficiency variances.

Payments for services are due in advance or upon consumption of resources.

Software c ontribution revenue .

Software c ontribution revenue consists of funds received under a non-reciprocal agreement with Gates Ventures, LLC.

The agreement is an unconditional non-exchange contribution without restrictions and the initial contribution was invoiced upon execution of the agreement.

Software contribution revenue.

Software contribution revenue consists of funds received under a non-reciprocal agreement with Gates Ventures, LLC.

The agreement is an unconditional non-exchange contribution without restrictions.

Revenue was recognized upon execution of the agreement and on the first anniversary of the agreement when invoiced in accordance with ASC Topic 958, Not-for-Profit Entities as the agreement is not an exchange transaction.

The agreement with Gates Ventures, LLC covers the period from June 23, 2020 through June 22, 2023 for total consideration of up to $ 3,000 .

The Company received $ 1,000 in connection with its entry into the agreement in the second quarter of 2020, and $ 1,000 in the second quarter of 2021 on the first anniversary of its entry into the agreement.

The Company is also entitled to receive an additional $ 1,000 payment on or around the second anniversary of the agreement, subject to the Company providing certain progress reports to the Trustees of Columbia University in the City of New York.

As of December 31, 2021, the Company had no deferred revenue balance related to this agreement.

The Company recognized revenue of $ 1,000 upon entry to the agreement and $ 1,000 upon each of the first and second anniversary of the agreement.

As of December 31, 2022, the Company had no deferred revenue

balance related to this agreement.

As of December 31, 2022, the Company had no accounts receivable related to this agreement.

The following table presents the revenue recognized from the sources of software products and services revenue:

Year Ended December 31,

2022 2021 2020

On-premise software $ 84,487 $ 74,598 $ 58,311

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Total software revenue $ 135,578 $ 113,236 $ 92,530

Drug Discovery

(b) Drug Discovery

Drug discovery services.

Revenue from drug discovery and collaboration services contracts is recognized either over time, typically by using costs incurred or hours expended to measure progress, or at a point in time based on the achievement of milestones.

Payments for services are generally due upon achieving milestones stated in a contract, upfront at the start of a contract, or upon consumption of resources.

Services may at times include variable consideration and milestone payments.

The Company has estimated the amount of consideration that is variable using the most likely amount method.

Revenue from drug discovery and collaboration services contracts is recognized either over time or at a point in time, typically by using costs incurred, hours expended to measure progress, or based on the achievement of milestones.

Payments for services are generally due upfront at the start of a contract, upon achieving milestones stated in a contract, or upon consumption of resources.

Services may at times include variable consideration, and the Company has estimated the amount of consideration that is variable using the most likely amount method.

The Company evaluates milestones on a case-by-case basis, including whether there are factors outside the Company’s control that could result in a significant reversal of revenue, and the likelihood and magnitude of a potential reversal.

If achievement of a milestone is not considered probable, the Company constrains (reduces) variable consideration to exclude the milestone payment until it is probable to be achieved.

As of December 31, 2021, 2020, and 2019, milestones not yet achieved that were determined to be probable of achievement totaled $ 2,250 , $ 250 , and $ 1,500 , respectively, and $ 2,250 , $ 85 , and $ 1,500 of those milestones were recognized as revenue for the years ended December 31, 2021, 2020, and 2019.

Upon removal of the constraint on variable consideration, revenue may be recognized at a point in time by applying the allocation guidance of Topic 606.

As of December 31, 2022, 2021, and 2020, milestones not yet achieved that were determined to be probable of achievement totaled $ 4,000 , $ 2,250 , and $ 250 , respectively, and $ 3,939 , $ 2,250 , and $ 85 of those milestones were recognized as revenue for the years ended December 31, 2022, 2021, and 2020, respectively.

Drug discovery contribution revenue .

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Revenue is recognized as conditions are met in accordance with ASC Topic 958, Not-for-Profit Entities.

As of December 31, 2021, there was a $ 1,129 deferred revenue balance related to this agreement.

As of December 31, 2022 and 2021, the Company had deferred revenue balances related to this agreement of $ 1,718 and $ 1,129 , respectively.

The following table presents the revenue recognized from the sources of drug discovery revenue:

Year Ended December 31,

2022 2021 2020

Drug discovery services revenue from contracts with customers $ 43,427 $ 24,584 $ 15,565

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Total drug discovery revenue $ 45,377 $ 24,695 $ 15,565

Collaboration and License Agreement

On November 22, 2020, the Company entered into an exclusive, worldwide collaboration and license agreement with Bristol-Myers Squibb Company (“BMS”), pursuant to which the Company and BMS have agreed to collaborate in the discovery, research and preclinical development of new small molecule compounds for disease indications in oncology, neurology, and immunology therapeutics areas.

The Company will be responsible, at its own cost and expense, for the discovery of small molecule compounds directed to five specified biological targets pursuant to a mutually agreed research plan for each such target.

The initial targets included HIF-2 alpha and SOS1/KRAS, which were two of the Company’s internal programs.

Under the agreement, the Company was initially responsible, at its own cost and expense, for the discovery of small molecule compounds directed to five specified biological targets pursuant to a

mutually agreed research plan for each such target.

The initial targets included HIF-2 alpha and SOS1/KRAS, which were two of the Company’s wholly-owned programs.

In November 2021, the Company and BMS mutually agreed to replace the HIF-2 alpha target with another precision oncology target.

Following the replacement election, all rights to the HIF-2 alpha target program reverted to us.

Following the replacement election, all rights to the HIF-2 alpha target program reverted to the Company.

In September 2022, BMS elected not to proceed with further development of another target and all rights to this program reverted to the Company, which increased revenue recognition due to the accelerated completion of our obligations related to the program.

In December 2022, the Company and BMS entered into an amendment to the agreement to include an additional target in neurology on terms similar to the original agreement.

Once a development candidate meeting specified criteria for a target under the agreement has been identified by the Company, BMS will be solely responsible for the further development, manufacturing and commercialization of such development candidate at its own cost and expense.

Under the terms of the agreement, BMS paid the Company an initial upfront fee payment of $ 55,000 .

The Company also is entitled to receive up to $ 2,700,000 in total milestone payments across all potential targets, consisting of:

a) up to $ 585,000 in milestone payments per oncology target, including $ 360,000 in the aggregate for the achievement of certain specified research, development, and regulatory milestones and $ 225,000 in the aggregate for the achievement of certain specified commercial milestones;

and b) up to $ 482,000 in milestone payments per neurology and immunology target, including $ 257,000 in the aggregate for the achievement of certain specified research, development, and regulatory milestones and $ 225,000 in the aggregate for the achievement of certain specified commercial milestones.

Under the terms of the agreement, as amended, BMS paid the Company an initial upfront fee payment of $ 55.0 million in November 2020 and an additional upfront payment in December 2022.

The Company also is eligible to receive up to $ 2.7 billion in total milestone payments across all potential targets, consisting of:

a) up to $ 585.0 million in milestone payments per oncology target, including $ 360.0 million in the aggregate for the achievement of certain specified research, development, and regulatory milestones and $ 225.0 million in the aggregate for the achievement of certain specified commercial milestones;

and b) up to $ 489.0 million in milestone payments per neurology and immunology target, including $ 264.0 million in the aggregate for the achievement of certain specified research, development, and regulatory milestones and $ 225.0 million in the aggregate for the achievement of certain specified commercial milestones.

The Company is also entitled to a tiered percentage royalty on annual net sales ranging from mid-single digits to low-double digits, subject to certain specified reductions.

Royalties are payable by BMS on a licensed product-by-licensed product and country-by-country basis until the later of the expiration of the last valid claim covering the licensed product in such country, expiration of all applicable regulatory exclusivities in such country for such licensed product and the tenth anniversary of the first commercial sale of such licensed product in such country.

The Company assessed the collaboration and license agreement in accordance with ASC 606 and concluded that BMS is a customer based on the agreement structure.

The Company assessed the collaboration and license agreement in accordance with Topic 606, and concluded that BMS is a customer based on the agreement structure.

At inception, the Company identified one performance obligation for each of the five programs under the agreement, which includes research activities for each program and a license grant for the underlying intellectual property.

The Company determined that the license grant for intellectual property is not separable from the research activities, as the research activities are expected to significantly modify or enhance the license grant over the period of service, and therefore are not distinct in the context of the contract.

The Company determined that the transaction price at the onset of the agreement is $ 55,000 .

The Company determined that the transaction price at the onset of the agreement is $ 55.0 million.

Additional consideration to be paid to the Company upon the achievement of future milestone payments were excluded from the transaction price as they represent milestone payments that are not considered probable as of the inception date such that there is not a significant risk of revenue reversal.

The Company has allocated the transaction price of $ 55,000 to each performance obligation based on the SSP of each performance obligation at inception, which was determined based on each performance obligation’s estimated standalone selling price.

The Company determined the estimated standalone selling price at contract inception of the research activities based on internal estimates of the costs to perform the services, inclusive of a reasonable profit margin.

The Company has allocated the transaction price of $ 55.0 million to each performance obligation based on the SSP of each performance obligation at inception, which was determined based on each performance obligation’s estimated SSP.

The Company determined the estimated SSP at contract inception of the research activities based on internal estimates of the costs to perform the services, inclusive of a reasonable profit margin.

Significant inputs used to determine the total costs to perform the research activities included the length of time required, the internal hours expected to be incurred on the services and the number and costs of various studies that will be performed to complete the research plan.

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Progress towards completion is remeasured at the end of each reporting period.

During the years ended December 31, 2021 and 2020, the Company recognized $ 13,749 and $ 988 , respectively, associated with the agreement based on the research activities performed.

During the years ended December 31, 2022, 2021, and 2020, the Company recognized $ 22.1 million, $ 13.7 million, and $ 1.0 million, respectively, associated with the agreement based on the research activities performed.

As of December 31, 2022 and 2021, there was $ 25.5 and $ 40.3 of deferred revenue related to the agreement, which was classified as either current or non-current in the consolidated balance sheet based on the period the services are expected to be performed.

There was no outstanding receivable for this collaboration as of December 31, 2021.

Significant Judgments

Significant judgments and estimates are required under ASC Topic 606.

There was $ 8.0 of outstanding receivables for this collaboration as of December 31, 2022.

(d) Significant Judgments

Significant judgments and estimates are required under Topic 606.

Due to the complexity of certain contracts, the actual revenue recognition treatment required under Topic 606 for the Company’s arrangements may be dependent on contract-specific terms and may vary in some instances.

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The Company is required to estimate the total consideration expected to be received from contracts with customers, including any variable consideration.

For collaborative arrangements which we are eligible to receive variable consideration in the form of milestones payments, we evaluate whether the milestones are considered probable of being achieved.

If it is probable that a significant revenue reversal would not occur, the constraint is removed and value of the associated milestone is included in the estimated transaction price using the most likely amount method based on contractual requirements and historical experience.

Once the estimated transaction price is established, amounts are allocated to the performance obligations that have been identified.

The transaction price is allocated to each separate performance obligation on a SSP basis.

The transaction price is allocated to each separate performance obligation on a relative SSP basis consistent with the allocation objectives of Topic 606.

Judgment is required to determine the SSP for each distinct performance obligation.

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Generally, the Company has not experienced significant returns or refunds to customers.

The Company’s estimates related to revenue recognition require significant judgment and a change in these estimates could have an effect on the Company’s results of operations during the periods involved.

Contract Balances

The Company’s estimates related to revenue recognition may require significant judgment and a change in these estimates could have an effect on the Company’s results of operations during the periods involved.

(e) Contract Balances

The timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in receivables, contract assets, or contract liabilities (deferred revenue) on the consolidated balance sheets.

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For the Company’s time-based software agreements, customers are generally invoiced at the beginning of the arrangement for the entire term, though when the term spans multiple years the customers may be invoiced on an annual basis.

For certain drug discovery agreements where the milestones are deemed probable in a period prior to when the milestone is achieved, the Company records a contract asset for the full value of the milestone.

For certain drug discovery agreements where the

milestones are deemed probable in a period prior to when the milestone is achieved, the Company records a contract asset for the full value of the milestone.

Contract assets are included in unbilled and other receivables within the consolidated balance sheets and are transferred to receivables when the Company invoices the customer.

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Drug discovery 23,072 26,126

For the years ended December 31, 2021 and 2020, respectively, the Company recognized $ 42,127 and $ 24,921 of revenue that was included in deferred revenue at the end of the preceding period.

For the years ended December 31, 2022 and 2021, respectively, the Company recognized $ 60,039 and $ 42,127 of revenue that was included in deferred revenue at the end of the respective preceding periods.

All other deferred revenue activity is due to the timing of invoices in relation to the timing of revenue, as described above.

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The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company’s products and services, not to facilitate financing arrangements.

Deferred Sales Commissions

(f) Deferred Sales Commissions

The Company has applied the practical expedient for sales commission expense, as any material compensation paid to sales representatives to obtain a contract relates to a period of one year or less.

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Furniture and fixtures 5,665 4,045

Lab equipment 76 —

28,357 22,380

Less accumulated depreciation ( 14,113 ) ( 12,355 )

$ 14,244 $ 10,025

Depreciation expense for 2022, 2021, and 2020 was $ 3,831 , $ 2,847 , and $ 3,658 , respectively, and is included within cost of revenues and research and development, sales and marketing, and general and administrative expenses within the consolidated statements of operations.

(5) Business Acquisition

On January 14, 2022, the Company used cash on hand to acquire all outstanding shares of XTAL BioStructures, Inc.

(“XTAL”), a company that provides structural biology services, including biophysical methods, protein production and purification, and X-ray crystallography.

The transaction qualified as a business combination for accounting purposes, which involves application of the acquisition method described in Topic 805.

The cash purchase price was approximately $ 7,429 which included $ 6,427 in upfront purchase price, net of cash acquired.

The acquisition of XTAL enables the Company to pursue scientific advancements in the field of structural biology, augment its ability to produce high quality target structures for its drug discovery programs, and expand its offerings to include an advanced and differentiated service that provides customers access to protein structures that have been computationally validated and are ready for structure-based virtual screening and lead optimization, giving rise to expected benefits supporting the amount of acquired goodwill.

The following table summarizes the fair values of the assets acquired and liabilities assumed by the Company as of the January 14, 2022 acquisition date.

The business combination accounting under Topic 805 was finalized for this acquisition during the three months ended June 30, 2022, with no changes to the provisional amounts disclosed for the three months ended March 31, 2022.

The Company has elected to use both practical expedients provided by ASU No.

2021-08 for the valuation of contract assets and contract liabilities from contracts with customers, with no material impact to the consolidated financial statements.

Accounts receivable 588

Other current assets 95

Property, plant and equipment 297

Intangible assets 1,100

Goodwill 4,791

Total assets acquired 7,873

Current liabilities 209

Deferred tax liability 235

Total liabilities assumed 444

Net assets acquired $ 7,429

The following table summarizes the purchase price allocation to the identifiable intangible assets and their estimated useful lives as of the January 14, 2022 acquisition date:

Amount Useful Life

Backlog $ 270 1

Customer relationships 710 5

Tradename/Trademark 120 1

The results of operations for XTAL beginning as of the January 14, 2022 acquisition date are included in these consolidated financial statements.

For the fiscal year ended December 31, 2022, the amount of revenues and net income of XTAL were not material to the consolidated financial statements taken as a whole.

Because the pro forma results of operations of the Company for the periods presented in these consolidated financial statements would not be materially different as a result of the acquisition, such information is not presented.

The costs incurred to acquire XTAL were not material and have been fully expensed and are included in general and administrative expenses in the consolidated statements of operations.

Amortization of intangibles was $ 513 and zero in general and administrative expenses as of December 31, 2022 and 2021, respectively.

(6) Fair Value Measurements

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Marketable securities, which consist primarily of corporate and U.S.

government agency bonds, are classified as available for sale and fair value does not differ significantly from carrying value as of December 31, 2021 and 2020.

government agency bonds, are classified as available for sale and fair value did not differ significantly from carrying value as of December 31, 2022 and 2021.

The following table presents information about the Company’s assets and liabilities measured at fair value as of December 31, 2022:

Level 1 Level 2 Level 3 Total

Cash and cash equivalents and restricted cash $ 95,717 $ — $ — $ 95,717

Marketable securities $ — $ 360,613 $ — $ 360,613

Equity investments 22,335 — 1,629 23,964

Total $ 118,052 $ 360,613 $ 1,629 $ 480,294

The following table presents information about the Company’s assets and liabilities measured at fair value as of December 31, 2021:

Level 1 Level 2 Level 3 Total

Cash and cash equivalents and restricted cash $ 123,267 $ — $ — $ 123,267

Marketable securities $ — $ 456,212 $ — $ 456,212

Equity investments 39,561 — 1,887 41,448

Fair value of the Company’s investments in Nimbus Therapeutics, LLC (“Nimbus”) and ShouTi Inc.

(“ShouTi”), classified as Level 3 in the fair value hierarchy, was determined under the hypothetical liquidated book value method (“HLBV method”), as further described in Note 12, Equity Investments.

Significant unobservable inputs used under the HLBV method include Nimbus’ and ShouTi’s annual financial statements and the Company’s respective liquidation priorities.

Total $ 162,828 $ 456,212 $ 1,887 $ 620,927

Fair value of the Company’s investments in Nimbus Therapeutics, LLC (“Nimbus”), Structure Therapeutics Inc., formerly known as ShouTi Inc., (“Structure Therapeutics”), and Eonix, LLC (“Eonix”), classified as Level 3 in the fair value hierarchy, was determined under the hypothetical liquidated book value method (“HLBV method”), as further described in Note 13, Equity Investments.

Significant unobservable inputs used under the HLBV method include Nimbus’, Structure Therapeutics’, and Eonix’s annual financial statements and the Company’s respective liquidation priorities.

The following table sets forth changes in fair value of the Company’s Level 3 investments:

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Unrealized gains and losses arising from changes in fair value of the Company’s equity investments are classified within change in fair value in the consolidated statements of operations.

During the years ended December 31, 2021 and 2020 , there were no transfers between Level 1, Level 2 and Level 3 investments.

During the years ended December 31, 2022 and

2021, there were no transfers between Level 1, Level 2 and Level 3 investments.

See Note 13, Equity Investments, for further information.

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As of December 31, 2022, the remaining weighted average lease term was 13 years.

During the year ended December 31, 2021, the accounting commencement began for two new leases, which increased the right-of-use (“ROU”) assets and lease liabilities by $ 71,054 .

ROU assets and lease liabilities were equal as no lease costs or incentives were associated with acquiring the leases.

On November 1, 2021, the Company entered into an office lease agreement for 16,727 square feet of office space located at One Main Street, Cambridge, Massachusetts.

Under the terms of the agreement, the Company will pay base rent of approximately $ 135 per month with a 3 % annual rental escalation.

The Company estimates that the lease commencement date will occur during the three months ending June 30, 2022 and continue to the end of the lease, which is 10 years after commencement.

On November 30, 2021, the Company entered into an office lease agreement for 19,753 square feet of office space located at Salarpuria Sattva, Knowledge City, Hyderabad, India.

Under the terms of the agreement, the Company will pay base rent of approximately $ 20 per month from commencement to handover date and $ 29 per month from handover date to termination of the lease.

The Company estimates that the lease handover and commencement dates will occur during the three months ending March 31, 2022 and continue to the end of the lease in June 2023 .

During the year ended December 31, 2022, right-of-use (“ROU”) assets increased by $ 34,763 due to the accounting commencement of seven new leases and by $ 2,824 due to a contingency resolution associated with the Company’s New York office lease.

During the same period, lease liabilities increased by $ 34,430 due the accounting commencement of the new leases.

On August 15, 2022, the Company entered into an office lease agreement for 17,500 square feet of office space in Framingham, Massachusetts.

Under the terms of the agreement, the Company is obligated to pay base rent of approximately $ 114 per month with a 2 % annual rental escalation each year.

The Company estimates that the lease commencement date will occur during the three months ending June 30, 2023 and continue to the end of the lease, which is ten years after commencement.

On December 20, 2022, the Company entered into a service agreement with a contract research organization, which includes the use of 12,000 square feet of lab space and lab equipment in Hyderabad, India.

This agreement has been identified as an embedded lease in this contract research agreement.

Under the terms of the agreement, the Company is obligated to pay a base fee of approximately $ 29 per month for the first year, and $ 56 per month for the four remaining years.

The Company estimates that the lease commencement date will occur during the three months ending June 30, 2023 and continue to the end of the lease, which is five years after commencement.

Variable and short-term lease costs were immaterial for the year ended December 31, 2022.

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Year Ended December 31,

2022 2021 2020

Operating lease costs $ 11,999 $ 7,627 $ 5,895

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Year ending December 31:

2023 $ 11,396

Thereafter 119,602

Total future minimum lease payments 187,119

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Lease liabilities, long-term $ 105,485

Legal Matters

(b) Legal Matters

From time to time, the Company may become involved in routine litigation arising in the ordinary course of business.

While the results of such litigation cannot be predicted with certainty, management believes that the final outcome of such matters is not likely to have a material adverse effect on the Company’s financial position or results of operations or cash flows.

(8) Income Taxes

Income tax expense is comprised of the following:

Year ended December 31,

Current income tax expense (benefit)

Deferred income tax expense (benefit)

2022 2021 2020

Federal $ ( 195 ) $ — $ —

State ( 280 ) 67 178

Foreign 538 344 167

Current income tax expense 63 411 345

Federal — — —

Foreign — — —

Deferred income tax expense — — —

Income tax expense $ 63 $ 411 $ 345

Components of loss before income taxes by tax jurisdiction were as follows:

Year ended December 31,

2022 2021 2020

United States $ ( 150,147 ) $ ( 101,341 ) $ ( 24,567 )

Foreign 1,021 1,359 449

Loss before income taxes $ ( 149,126 ) $ ( 99,982 ) $ ( 24,118 )

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Year ended December 31,

2022 2021 2020

Statutory federal income tax rate 21.0 % 21.0 % 21.0 %

State taxes, net of federal benefits 5.1 4.9 14.2

Withholding tax

Section 162(m) limitation ( 1.1 ) ( 5.2 ) ( 12.8 )

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Change in valuation allowance ( 28.6 ) ( 37.2 ) ( 95.0 )

Other — ( 0.2 ) ( 1.6 )

Effective income tax rate — % ( 0.4 ) % ( 1.4 ) %

The income tax expense for the years ended December 31, 2021 and December 31, 2020 primarily related to state taxes and taxes in foreign jurisdictions.

Income tax benefit for the year ended December 31, 2019 primarily related to alternative minimum tax credits previously utilized that are refundable under the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”).

The income tax expense for the years ended December 31, 2022, 2021, and 2020 primarily related to state taxes and taxes in foreign jurisdictions.

The total change in valuation allowance for the year ended December 31, 2022 was $ 42,653 , which primarily was due to the generation of net operating losses.

1 unchanged sentence

As of December 31,

2022 2021 2020

Deferred income tax assets:

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Lease liabilities 28,952 18,773 2,165

Credits 18,456 14,559 8,752

Gross deferred tax assets 170,571 122,258 70,727

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Pursuant to Internal Revenue Code Sections 382 and 383, the utilization of NOLs and other tax attributes may be substantially limited due to cumulative changes in ownership greater than 50% that may have occurred or could occur during applicable testing periods.

The Company has performed an analysis through March 31, 2021 and

determined that such an ownership change has occurred.

The Company has performed an analysis through December 31, 2022 and determined that such an ownership change occurred on March 31, 2021.

There was no material impact to the financial statements due to this ownership change.

The Company has not recognized a deferred tax liability for the undistributed earnings of its foreign operations as the Company considers these earnings to be indefinitely reinvested.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law in March 2020.

The CARES Act lifts certain deduction limitations originally imposed by the 2017 Tax Act.

With the enactment of the CARES Act, the Company has not recognized a quantitative or qualitative impact for the years ended December 31, 2021, 2020, and 2019.

The Company classifies interest and penalties related to unrecognized tax benefits within income tax expense in the consolidated statement of operations.

1 unchanged sentence

Year ended December 31,

2022 2021 2020

Balance, January 1 $ 1,702 $ 1,046 $ 902

3 unchanged sentences

Balance, December 31

$ 2,142 $ 1,702 $ 1,046

The Company does not anticipate any significant increases or decreases in its uncertain tax positions within the next 12 months.

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(9) Stockholders’ Equity (Deficit)

(a) Common Stock

As of December 31, 2022, the Company had authorized 500,000,000 shares of common stock with a par value of $ 0.01 per share.

2 unchanged sentences

The rights, preferences and privileges of holders of the common stock are subject to and may be adversely affected by the right of the holders of shares of any series of preferred stock that the Company may designate and issue in the future.

Limited Common Stock

(b) Limited Common Stock

As of December 31, 2022, the Company had authorized 100,000,000 shares of limited common stock with a par value of $ 0.01 per share.

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The rights, preferences and privileges of holders of the limited common stock are subject to and may be adversely affected by the right of the holders of shares of any series of preferred stock that the Company may designate and issue in the future.

Preferred Stock

As of December 31, 2022, the Company had authorized 10,000,000 shares of undesignated preferred stock with a par value of $ 0.01 per share.

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Stock Incentive Plans

As of December 31, 2021, the Company’s stock incentive plans included the 2010 Stock Plan (the “2010 Plan”), the 2020 Equity Incentive Plan (the “2020 Plan”), and the 2021 Inducement Equity Incentive Plan (the "2021 Plan”) (together, the “Plans”).

The 2020 Plan provides for the award of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other stock-based awards to employees, directors, consultants or advisors.

As of December 31, 2022, the Company’s stock incentive plans included the 2010 Stock Plan (the “2010 Plan”), the 2020 Equity Incentive Plan (the “2020 Plan”), the 2021 Inducement Equity Incentive Plan, as amended (the “2021 Plan”), and the 2022 Equity Incentive Plan (the “2022 Plan”) (together, the “Plans”).

The 2022 Plan provides for the award of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, other stock-based awards, and cash-based awards to employees, directors, consultants or advisors.

Shares of common stock subject to outstanding awards granted under the 2020 Plan and the 2010 Plan that expire, terminate, or are otherwise surrendered, cancelled, forfeited, or repurchased by the Company are available for issuance under the 2022 Plan.

The 2021 Plan provides for the award of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other stock-based awards to persons who were not previously an employee or director of the Company or who are commencing employment with the Company following a bona fide period of non-employment, in either case, as an inducement material to such person’s entry into employment with the Company and in accordance with the requirements of the Nasdaq Stock Market Rule 5635(c)(4).

Neither consultants nor advisors are eligible to participate in the 2021 Plan.

The 2020 Plan provided for the award of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other stock-based awards to employees, directors, consultants or advisors.

As of June 15, 2022, the effective date of the 2022 Plan, no further awards will be made under the 2020 Plan.

Any options or awards outstanding under the 2020 Plan remain outstanding and effective.

The 2010 Plan provided for the granting of incentive stock options and nonstatutory stock options to employees, directors, consultants or advisors.

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Any options or awards outstanding under the 2010 Plan remain outstanding and effective.

Shares of common stock subject to outstanding awards granted under the 2010 Plan that expire, terminate, or are otherwise surrendered, cancelled, forfeited, or repurchased by the Company are available for issuance under the 2020 Plan.

As of December 31, 2022, there were 5,470,240 shares available for grant under the Plans.

The following table presents classification of stock-based compensation expense within the consolidated statements of operations:

Year Ended December 31,

2022 2021 2020

Cost of sales $ 5,382 $ 3,858 $ 1,384

Research and development 11,816 7,440 3,050

Sales and marketing 2,818 1,281 516

General and administrative 19,614 13,911 5,595

Total stock-based compensation $ 39,630 $ 26,490 $ 10,545

Restricted Stock Units

Each restricted stock unit (“RSU”) represents the right to receive one share of the Company’s common stock upon vesting.

The fair value of RSUs granted by the Company was calculated based upon the Company’s closing stock price on the date of the grant, and the stock-based compensation expense is recognized over the vesting period.

RSUs generally vest over four years with 25 % of the grants vesting at the end of the first year and the remaining vesting annually over the following three years.

Restricted stock unit activity was as follows:

shares Weighted Average Grant Date Fair Value Per Share

Beginning, January 1, 2022 — $ —

Granted 57,600 26.86

Forfeited ( 8,800 ) 27.76

Balance, December 31, 2022

The weighted average grant date fair value for each RSU granted during the year ended December 31, 2022 was $ 26.86 .

There was no intrinsic value of RSUs settled during 2022.

As of December 31, 2022, there was $ 1,012 of unrecognized compensation cost related to RSUs granted under the Plans, which is expected to be recognized over a weighted average period of 3.11 years.

No RSUs vested during twelve months ended December 31, 2022.

Performance-Based Restricted Stock Units

In August 2022, the Company awarded performance-based restricted stock units ("PRSUs") under the 2021 Plan.

Each PRSU represents a contingent right to receive one share of common stock upon the achievement of specified performance goals.

The fair value of PRSUs granted by the Company was calculated based upon the Company's closing stock price on the date of the grant, and the stock-based compensation expense is recognized when the grant date is determined and performance conditions are probable of achievement.

At the point where performance conditions are considered probable of achievement, the Company records stock-based compensation expense with a cumulative catch-up expense in the period first recognized and on a straight-line basis over the remaining period for which the performance criteria are expected to be completed.

Performance based restricted stock unit activity was as follows:

shares Weighted Average Grant Date Fair Value Per Share

Beginning, January 1, 2022 — $ —

Granted 30,150 28.55

Forfeited — —

Balance, December 31, 2022

During the year ended December 31, 2022, the Company awarded 90,000 PRSUs to an employee of which 30,150 PRSUs were considered granted under ASC 718, Compensation—Stock Compensation .

The weighted average grant date fair value for each PRSU granted during the year ended December 31, 2022 was $ 28.55 .

There was no intrinsic value of PRSUs settled during the year ended December 31, 2022.

No PRSUs vested during the year ended December 31, 2022.

Of the 30,150 PRSUs that were considered granted during the year ended December 31, 2022, 18,000 of the PRSUs are scheduled to vest, if at all, upon the certification by the Company's compensation committee of the achievement of the applicable performance conditions following the filing of the Company's Annual Report on Form 10-K for the fiscal year ending December 31, 2023 and 12,150 PRSUs are scheduled to vest, if at all, upon the certification by the Company's compensation committee of the achievement of the applicable performance conditions following the filing of the

Company's Annual Report on Form 10-K for the fiscal year ending December 31, 2024.

No conditions were determined to be probable as of December 31, 2022 and no expense was recorded during the year ended December 31, 2022.

Stock Options

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The maximum contractual term of options granted under the Plans is typically 10 years, options generally vest over four years with 25 % of the shares underlying the option vesting at the end of the first year and the remaining vesting monthly over the following three years.

During 2021, 2020, and 2019, 1,120,981 , 1,398,177 , and 214,845 options under the Plans were exercised for total proceeds of $ 7,927 , $ 4,183 , and $ 549 , respectively.

During the years ended December 31, 2022, 2021, and 2020, 329,224 , 1,120,981 , and 1,398,177 options under the Plans were exercised for total proceeds of $ 2,110 , $ 7,927 , and $ 4,183 , respectively.

The fair value of each option award is determined on the date of grant using the Black Scholes Merton option-pricing model.

The calculation of fair value includes several assumptions that require management’s judgment.

The expected terms of options granted to employees during 2021, 2020, and 2019 were calculated using an average of historical exercises.

Estimated volatility for 2021, 2020, and 2019 incorporates a calculated volatility derived from the historical closing prices of shares of common stock of similar entities whose share prices were publicly available

for the expected term of the option.

The expected terms of options granted to employees during the years ended December 31, 2022, 2021, and 2020 were calculated using an average of historical exercises.

Estimated volatility for 2022, 2021, and 2020 incorporates a calculated volatility derived from the historical closing prices of shares of common stock of similar entities whose share prices were publicly available for the expected term of the option.

The risk-free interest rate is based on the U.S.

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The Company accounts for forfeitures as they occur, as such, the Company does not estimate forfeitures at the time of grant.

As of December 31, 2021, there were 2,283,037 shares available for grant under the Plans.

Following are the weighted average valuation assumptions used for options:

Following are the weighted average valuation assumptions used for option awards during the periods presented:

Year Ended December 31,

2022 2021 2020

Valuation assumptions

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Risk-free interest rate 2.13 % 0.71 % 1.46 %

The following table presents classification of stock-based compensation expense within the consolidated statements of operations:

Year Ended December 31,

Cost of sales

Research and development

Sales and marketing

General and administrative

Total stock-based compensation

Stock option activity was as follows:

shares Weighted

price Weighted

term (years) Aggregate

Beginning, January 1, 2022 7,680,341 $ 30.19

Granted 4,060,060 27.48

Exercised ( 329,224 ) 6.41

Forfeited ( 450,653 ) 37.06

Expired ( 26,297 ) 74.68

Balance, December 31, 2022

10,934,227 29.56 7.60 $ 37,823

Exercisable, December 31, 2022

The weighted average grant date fair value per share of options granted during 2021, 2020, and 2019 was $ 45.07 , $ 9.55 , and $ 2.93 , respectively .

The intrinsic value of options exercised during 2021, 2020, and 2019 was $ 71,308 , $ 87,946 , and $ 546 , respectively.

5,210,425 23.39 6.40 $ 35,563

The weighted average grant date fair value per share of options granted during the years ended December 31, 2022, 2021, and 2020 was $ 13.67 , $ 45.07 , and $ 9.55 , respectively.

The intrinsic value of options exercised during the years ended December 31, 2022, 2021, and 2020 was $ 6,548 , $ 71,308 , and $ 87,946 , respectively.

As of December 31, 2022, there was $ 86,628 of unrecognized compensation cost related to unvested stock options granted under the Plans, which is expected to be recognized over a weighted average period of 2.54 years.

The fair value of shares vested during 2021, 2020, and 2019 was $ 19,080 , $ 3,153 , and $ 1,734 , respectively.

The fair value of shares vested during the years ended December 31, 2022, 2021, and 2020 was $ 43,559 , $ 19,080 , and $ 3,153 , respectively.

(11) Noncontrolling Interest

The Company reviews each legal entity formed by parties related to the Company to determine whether or not the Company has a variable interest in the entity and whether or not the entity would meet the definition of a variable interest entity (“VIE”) in accordance with ASC Topic 810, Consolidation .

If the entity is a VIE, the

Company assesses whether or not the Company is the primary beneficiary of that VIE based on a number of factors, including (i) which party has the power to direct the activities that most significantly affect the VIE’s economic performance, (ii) the parties’ contractual rights and responsibilities pursuant to any contractual agreements and (iii) which party has the obligation to absorb losses or the right to receive benefits from the VIE.

If the entity is a VIE, the Company assesses whether or not the Company is the primary beneficiary of that VIE based on a number of factors, including (i) which party has the power to direct the activities that most significantly affect the VIE’s economic performance, (ii) the parties’ contractual rights and responsibilities pursuant to any contractual agreements and (iii) which party has the obligation to absorb losses or the right to receive benefits from the VIE.

If the Company determines it is the primary beneficiary of a VIE, the Company consolidates the financial statements of the VIE into the Company’s consolidated financial statements at the time that determination is made.

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If the Company were to determine that it is no longer the primary beneficiary of a consolidated VIE, or no longer has a variable interest in the VIE, it would deconsolidate the VIE in the period that the determination is made.

If the Company determines it is the primary beneficiary of a VIE that meets the definition of a business, the Company measures the assets, liabilities and noncontrolling interests of the newly consolidated entity at fair value in accordance with ASC Topic 805, Business Combinations at the date the reporting entity first becomes the primary beneficiary.

If the Company determines it is the primary beneficiary of a VIE that meets the definition of a business, the Company measures the assets, liabilities and noncontrolling interests of the newly consolidated entity at fair value in accordance with Topic 805 at the date the reporting entity first becomes the primary beneficiary.

In October 2018, Faxian Therapeutics, LLC (“Faxian”) was formed in the United States.

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Year Ended December 31,

Net loss attributable to Schrödinger common

and limited common stockholders

Weighted average shares used to compute net

loss per share attributable to Schrödinger common

and limited common stockholders, basic and diluted:

Net loss per share attributable to Schrödinger common

and limited common stockholders, basic and diluted:

Since the Company was in a loss position for all years presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential common shares outstanding would have been anti-dilutive.

2022 2021 2020

Net loss attributable to Schrödinger common and limited common stockholders $ ( 149,186 ) $ ( 100,393 ) $ ( 24,463 )

Weighted average shares used to compute net loss per share attributable to Schrödinger common and limited common stockholders, basic and diluted:

71,173,419 70,594,950 60,024,658

Net loss per share attributable to Schrödinger common and limited common stockholders, basic and diluted:

$ ( 2.10 ) $ ( 1.42 ) $ ( 0.41 )

Since the Company was in a loss position for all years presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential common shares and limited common shares outstanding would have been anti-dilutive.

Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:

Year Ended December 31,

Convertible preferred stock

Shares subject to outstanding common stock options

2022 2021 2020

Shares subject to outstanding common stock options and RSUs 11,013,177 7,680,341 7,257,460

11,013,177 7,680,341 7,257,460

(13) Equity Investments

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The Company has no obligation to fund Nimbus losses in excess of its initial investment.

The Company reported losses of zero , $ 2,977 , and $ 4,180 on the Nimbus investment during 2021, 2020, and 2019, respectively.

The Company reported losses of zero , zero , and $ 2,977 on the Nimbus investment during the years ended December 31, 2022, 2021, and 2020, respectively.

The Company accounts for its investment in Morphic Holding, Inc.

(“Morphic”) at fair value based on the share price of Morphic’s common stock at the measurement date.

During 2021, 2020, and 2019 the Company reported gains of $ 11,548 , $ 13,685 , and $ 14,102 on the Morphic investment, respectively.

During the year ended December 31, 2022, the Company reported a loss of $ 17,226 on the Morphic investment.

During the years ended December 31, 2021 and 2020, the Company reported gains of $ 11,548 , and $ 13,685 on the Morphic investment, respectively.

As of December 31, 2022 and December 31, 2021, the carrying value of the Company’s investment in Morphic was $ 22,335 and $ 39,561 , respectively.

Prior to May 2020, the Company had concluded that its equity investment in Petra Pharma Corporation (“Petra”) should be valued as a non-marketable equity security as the Company did not exercise significant influence over Petra.

During May 2020, Petra entered into a merger agreement with a third party.

In connection with the merger, the Company received $ 4,582 of merger consideration in exchange for the Company’s shares of Petra common stock and is eligible to receive potential earn-outs tied to the achievement of specified development, regulatory, and commercial milestones.

The Company is also eligible to receive $ 361 in escrow payments.

During 2021, the Company received escrow payments of $ 335 .

In connection with the Petra merger, the Company received 2,676,191 shares of common stock of Ravenna Pharmaceuticals, Inc.

In connection with the merger of Petra Pharma Corporation ("Petra") and a third party, the Company received 2,676,191 shares of common stock of Ravenna Pharmaceuticals, Inc.

The Company concluded that its equity investment in Ravenna should be valued as a non-marketable equity security as the Company does not exercise significant influence over Ravenna.

As of each of December 31, 2021 and December 31, 2020, the carrying value of the Company’s investment in Ravenna was $ 19 and $ 94 , respectively.

As of each of December 31, 2022 and December 31, 2021, the carrying value of the Company’s investment in Ravenna was $ 19 .

The Company reported losses of zero , $ 75 , and zero on the Ravenna investment during 2022, 2021, and 2020, respectively.

In July 2020, Relay successfully completed an initial public offering.

The Company accounts for its investment in Relay at fair value based on the share price of Relay’s common stock at the measurement date.

In January 2021, the Company disposed of its equity stake in Relay for aggregate consideration of $ 15,735 , resulting in a loss of $ 1,821 for 2021.

The Company reported a gain of $ 17,556 on the Relay investment for the year ended December 31, 2020.

There was no gain or loss on the Relay investment for 2019, as Relay was not a public company during this period.

In May 2021, the Company purchased 631,377 shares of Series B preferred stock of Ajax Therapeutics, Inc.

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The Company has concluded that its equity investment in Ajax should be valued as a non-marketable equity security as the Company does not exercise significant influence over Ajax.

As of December 31, 2021 and December 31, 2020, the carrying value of the Company’s investment in Ajax was $ 1,700 and zero , respectively.

In July 2021, the Company purchased 494,035 shares of Series B preferred stock of ShouTi for $ 2,000 in cash.

As ShouTi is structured as a company limited by shares, incorporated under the laws of the Cayman Islands and the Company is not a passive investor due to its collaboration with ShouTi on a number of drug discovery targets, the Company’s management determined that it has significant influence over the entity and therefore accounts for the investment as an equity method investment.

The Company has determined that the HLBV method for valuing contractual rights to substantive profits provides the best representation of its financial position in ShouTi.

The carrying value of ShouTi was $ 1,887 and zero as of December 31, 2021 and December 31, 2020, respectively.

The Company has no obligation to fund ShouTi losses in excess of its initial investment.

The Company recorded a loss of $ 113 on the ShouTi investment during the year ended December 31, 2021.

As of each of December 31, 2022 and December 31, 2021, the carrying value of the Company’s investment in Ajax was $ 1,700 .

(e) Structure Therapeutics

In July 2021, the Company purchased 494,035 shares of Series B preferred stock of Structure Therapeutics for $ 2,000 in cash.

In April 2022, the Company purchased an additional 148,210 shares of Series B preferred stock for $ 600 in cash.

As Structure Therapeutics is structured as an exempted company limited by shares, incorporated under the laws of the Cayman Islands and the Company is not a passive investor due to its collaboration with Structure Therapeutics on a

number of drug discovery targets, the Company’s management determined that it has significant influence over the entity and therefore accounts for the investment as an equity method investment.

The Company has determined that the HLBV method for valuing contractual rights to substantive profits provides the best representation of its financial position in Structure Therapeutics.

The carrying value of Structure Therapeutics was $ 1,629 and $ 1,887 as of December 31, 2022 and December 31, 2021, respectively.

The Company has no obligation to fund Structure Therapeutics losses in excess of its initial investment.

For the years ended December 31, 2022 and 2021, the Company recorded losses of $ 858 and $ 113 , respectively, on the Structure Therapeutics investment.

On March 31, 2022, the Company received 4,000,000 membership interest units of Eonix in exchange for material science collaboration services under the terms of a master services agreement executed on March 31, 2022.

As Eonix is a limited liability company and the Company is not a passive investor due to its collaboration with Eonix on a number of material science targets, the Company's management determined that it has significant influence over the entity and therefore accounts for the investment as an equity method investment.

The Company has determined that the HLBV method for valuing contractual rights to substantive profits provides the best representation of its financial position in Eonix.

The carrying value of Eonix was zero as of December 31, 2022.

For the year ended December 31, 2022, there was no gain or loss on the Eonix investment .

(14) Employee Benefit Plan

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(15) Related Party Transactions

For the years ended December 31, 2021, 2020, and 2019, the Company licensed technology and purchased services for $ 7,940 , $ 7,281 , and $ 5,190 , respectively, from companies controlled by David E.

Shaw and/or affiliates of companies controlled by David E.

Shaw (the “D.

Shaw entities”), stockholders of the Company.

In addition, D.

Shaw entities purchased certain products and services from, and provided cost reimbursements to, the Company totaling $ 318 , $ 226 , and $ 195 for the years ended December 31, 2021, 2020, and 2019, respectively.

As of December 31, 2021 and 2020, the Company had net payables of $ 2,637 and $ 3,464 , respectively, to D.E.

Shaw entities.

(a) Board Member

For the years ended December 31, 2022, 2021, and 2020, the Company paid consulting fees of $ 410 , $ 390 , and $ 364 , respectively, to a member of its board of directors.

Bill and Melinda Gates Foundation

For the years ended December 31, 2021, 2020, and 2019, the Bill & Melinda Gates Foundation, an entity under common control with Bill and Melinda Gates Foundation Trust, a stockholder of the Company, issued a grant under which it agreed to pay the Company directly for certain licenses and services provided to a specified group of third-party organizations.

Revenue recognized for services provided by the Company under this grant were $ 1,160 , $ 2,094 , and $ 1,065 for the years ended December 31, 2021, 2020, and 2019, respectively.

(b) Bill and Melinda Gates Foundation

The Bill & Melinda Gates Foundation, an entity under common control with Bill and Melinda Gates Foundation Trust, a stockholder of the Company, issued a grant under which it agreed to pay the Company directly for certain licenses and services provided to a specified group of third-party organizations.

Revenue recognized for services provided by the Company under this grant were $ 387 , $ 1,160 , and $ 2,094 for the years ended ended December 31, 2022, 2021, and 2020, respectively.

As of December 31, 2022 and 2021, the Company had net receivables of $ 20 and $ 165 , respectively, due from the Bill & Melinda Gates Foundation.

In the fourth quarter of 2021, the Company recognized $ 111 in drug discovery contribution revenue related to funds received under an agreement with the Bill & Melinda Gates Foundation, aimed at accelerating drug discovery in women’s health.

For the three months and year ended December 31, 2022, the Company recognized $ 573 and $ 1,949 , respectively, in drug discovery contribution revenue related to funds received under an agreement with the Bill & Melinda Gates Foundation, aimed at accelerating drug discovery in women’s health.

As of December 31, 2022, the Company had no receivables due under this agreement from the Bill & Melinda Gates Foundation.

The Company received $ 1,000 in contribution revenue in connection with its entry into an agreement with Gates Ventures, LLC in the second quarter of 2020, and $ 1,000 in contribution revenue in the second quarter of 2021 on the first anniversary of its entry into the agreement.

Gates Ventures, LLC is an entity under control of William H.

As of December 31, 2022 and 2021, restricted cash on hand related to the arrangement was $ 1,742 and $ 1,130 , respectively.

The Company received $ 1,000 in contribution revenue in connection with its entry into an agreement with Gates Ventures, LLC in the second quarter of 2020, $ 1,000 in contribution revenue in the second quarter of 2021 on the first anniversary of its entry into the agreement, and $ 1,000 in contribution revenue in the second quarter of 2022 on the second anniversary of its entry into the agreement.

Gates Ventures, LLC is an entity under the control of William H.

Gates III, who may be deemed to be the beneficial owner of more than 5 % of the Company’s voting securities.

As of December 31, 2022 and 2021, the Company had no net receivables due from Gates Ventures, LLC.

During the year ended December 31, 2021, the Company entered into multiple software agreements with ShouTi and its subsidiary for approximately $ 650 .

During the year ended December 31, 2021, the Company entered into multiple software agreements with Structure Therapeutics and its subsidiary for approximately $ 650 .

The Company recognized revenue of approximately $ 297 in the aggregate related to these agreements during the year ended December 31, 2022.

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Additionally, the Company reports assets on a consolidated basis and does not allocate assets to its reportable segments for purposes of assessing segment performance or allocating resources.

Presented below is financial information with respect to the Company’s reportable segments for the periods presented:

Presented below is financial information with respect to the Company’s reportable segments for the years presented:

Year Ended December 31,

2022 2021 2020

Segment revenues:

Software $ 135,578 $ 113,236 $ 92,530

Drug discovery 45,377 24,695 15,565

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Segment gross profit:

Software $ 106,002 $ 86,741 $ 74,527

Drug discovery ( 4,980 ) ( 21,121 ) ( 11,055 )

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General and administrative ( 90,825 ) ( 64,009 ) ( 41,898 )

(Loss) gain on equity investments

Gain (loss) on equity investments 11,825 ( 1,781 ) 4,108

Change in fair value ( 18,084 ) 11,359 28,263

Interest income

Other income 3,950 1,057 2,253

Income tax (expense) benefit ( 63 ) ( 411 ) ( 345 )

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Year Ended December 31,

2022 2021 2020

United States $ 123,555 $ 90,398 $ 60,737

Europe 33,049 27,810 24,370

Japan 10,469 8,565 14,558

Rest of World 13,882 11,158 8,430

$ 180,955 $ 137,931 $ 108,095

(17) Subsequent Events

On January 14, 2022, we acquired 117,840 shares of XTAL BioStructures, Inc.

for $ 6.5 million, a company that provides structural biology services, including biophysical methods, protein production and purification, and X-ray crystallography, which includes $ 6.0 million in upfront purchase price, plus an adjustment for working capital, less cash acquired.

On February 13, 2023, on account of its equity position in Nimbus, the Company reported the receipt of a $ 111,300 cash distribution from Nimbus following the closing of Takeda's acquisition of Nimbus Lakshmi, Inc., a wholly-owned subsidiary of Nimbus, and its tyrosine kinase 2 inhibitor NDI-034858.

The Company expects to receive from Nimbus a second cash distribution of $ 36,000 in the second quarter of 2023, for a total cash distribution of $ 147,300 .

The Company will record a gain on this transaction in the first quarter of 2023.

On February 7, 2023, Structure Therapeutics completed its initial public offering ("IPO").

The Company participated in the IPO and purchased 275,000 American Depository Shares ("ADS") at $ 15 per ADS in the IPO.

Each ADS represents three ordinary shares.

The Company also owns 3,260,495 ordinary shares in Structure Therapeutics.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data