What changed in this filing

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Item 9A. Controls and Procedures

2024-02-28 compared with 2023-02-28 · 54 added, 43 removed, 195 unchanged (33% of the section changed)

5 unchanged sentences

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on such evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective as of December 31, 2022 because of the material weakness in our internal control over financial reporting described below.

Based on such evaluation of our disclosure controls and procedures as of December 31, 2023, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Annual Report on Internal Control Over Financial Reporting

2 unchanged sentences

Management assessed our internal control over financial reporting as of December 31, 2023, using the criteria established in Internal Control - Integrated Framework (2013) set forth by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on the results of its evaluation, management has concluded that our internal control over financial reporting was not effective as of December 31, 2022, due to a material weakness in our internal control over financial reporting.

The material weakness related to a deficiency in the design of our control in our 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 a result of ineffective risk assessment as our existing controls were designed insufficiently to identify a change in timing of performance milestones in the newly executed contract.

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 our annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness described above resulted in a $1.7 million understatement of drug discovery revenue and a related understatement of contract assets that were corrected prior to the issuance of our consolidated financial statements as of and for the year ended December 31, 2022.

Our independent registered public accounting firm, KPMG LLP, who audited the consolidated financial statements included in this Annual Report on Form 10-K, issued an adverse opinion on the effectiveness of our internal control over financial reporting.

KPMG LLP’s report is included in Item 8 of this Annual Report.

Remediation Plan and Status

Our Board of Directors and management are committed to maintaining a strong internal control environment.

We have developed a detailed remediation plan and are making progress in what will be a multi-step process to fully remediate

the material weakness described above.

Specifically, as of December 31, 2022, we are in the process of implementing and expanding our controls and procedures in our revenue process in order to timely identify changes to the timing of when a performance milestone becomes probable of achievement in drug discovery arrangements and to ensure such determinations are made through the end of the reporting period.

In addition, we will continue to assess risks on an ongoing basis to timely identify changes in our business that may create new exposures or risk categories, and we plan to conduct a comprehensive review and, as applicable, update our existing internal control framework to ensure that we have identified, developed, and deployed the appropriate business process controls to address the new exposures or risk categories that are identified.

The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

We believe the measures described above will remediate this material weakness and strengthen our internal control over financial reporting.

As we continue to evaluate and work to remediate this material weakness, we may determine to take additional measures to address these deficiencies or determine to modify certain of the remediation measures described above.

Based on the results of its evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2023.

Our independent registered public accounting firm, KPMG LLP, has issued an attestation report on the effectiveness of our internal control over financial reporting, which is included in Item 8 of this Annual Report.

Changes in Internal Control Over Financial Reporting

Other than the changes related to the ongoing remediation efforts described above, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fourth quarter of 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

As previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 28, 2023, we identified a material weakness in our internal control over financial reporting.

The material weakness related to a deficiency in the design of a control in our 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 a result of ineffective risk assessment, as our then-existing controls were designed insufficiently to identify a change in timing of performance milestones in the newly executed contract.

This material weakness resulted in a $1.7 million understatement of drug discovery revenue and a related understatement of contract assets that were corrected prior to the issuance of our consolidated financial statements as of and for the year ended December 31, 2022.

During the year ended December 31, 2023, we implemented measures designed to improve our internal control over financial reporting to remediate this material weakness, including redesigning our controls and procedures in our revenue process in order to timely identify changes to the timing of when a performance milestone becomes probable of achievement in drug discovery arrangements and to ensure such determinations are made through the end of the reporting

We have redesigned the existing control to adjust the timing of performance to ensure all milestones in newly executed discovery arrangements are considered for their impact on revenue.

Based on the remediation actions taken and completed during 2023, and our testing and evaluation of the newly implemented control activities and our internal control over financial reporting, we have concluded that the material weakness has been remediated as of December 31, 2023.

Except with respect to the changes in connection with our implementation of the remediation efforts described above, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fourth quarter of 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations of Internal Controls

4 unchanged sentences

Other Information.

(b) Director and Officer Trading Arrangements

A significant portion of the compensation of our directors and officers (as defined in Rule 16a-1(f) under the Exchange Act) is in the form of equity awards and, from time to time, directors and officers engage in open-market transactions with respect to the securities acquired pursuant to such equity awards or our other securities, including to satisfy tax withholding obligations when equity awards vest or are exercised, and for diversification or other personal reasons.

Transactions in our securities by directors and officers are required to be made in accordance with our insider trading policy, which requires that the transactions be in accordance with applicable U.S.

federal securities laws that prohibit trading while in possession of material nonpublic information.

Rule 10b5-1 under the Exchange Act provides an affirmative defense that enables directors and officers to prearrange transactions in our securities in a manner that avoids concerns about initiating transactions while in possession of material nonpublic information.

The following table describes, for the fourth quarter of 2023, each trading arrangement for the sale or purchase of our securities adopted or terminated by our directors and officers that is either (1) a contract, instruction or written plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c), or a Rule 10b5-1 trading arrangement , or (2) a “ non-Rule 10b5-1 trading arrangement ” (as defined in Item 408(c) of Regulation S-K):

Name and Title Action Taken (Date of Action) Type of Trading Arrangement Nature of Trading Arrangement Duration of Trading Arrangement Aggregate Number of Shares of Common Stock

Robert Abel Executive Vice President, Chief Science Officer, Platform

( November 6, 2023 )

Rule 10b5-1 trading arrangement for exercise of stock options and sales of shares

Until December 31, 2024, or such earlier date upon which all transactions are completed or expire without execution

Up to 48,772 shares

Margaret Dugan , Chief Medical Officer

( November 13, 2023 )

Durable Rule 10b5-1 trading arrangement for sell-to-cover transactions relating to all equity awards that have or may be granted

Until final settlement of any covered RSU

Indeterminable (1)

Geoffrey Porges , Executive Vice President, Chief Financial Officer

( November 28, 2023 )

Rule 10b5-1 trading arrangement for exercise of stock options and sales of shares

Until December 6, 2024, or such earlier date upon which all transactions are completed or expire without execution

Up to 23,946 shares

(1) The number of shares subject to covered RSUs that will be sold to satisfy applicable tax withholding obligations upon vesting is unknown as the number will vary based on the extent to which vesting conditions are satisfied, the market price of our common stock at the time of settlement and the potential future grant of additional RSUs subject to this arrangement.

This trading arrangement, which applies to RSUs whether vesting is based on the passage of time and/or the achievement of performance goals, provides for the automatic sale of shares that would otherwise be issuable on each settlement date of a covered RSU in an amount sufficient to satisfy the applicable withholding obligation, with the proceeds of the sale delivered to us in satisfaction of the applicable withholding obligation.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

20 unchanged sentences

Consolidated Statements of Operations for the Years ended December 31, 2023, 2022, and 2021

Consolidated Statements of Comprehensive Loss for the Years ended December 31, 2022, 2021, and 2020

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Years ended December 31, 2022, 2021, and 2020

Consolidated Statements of Comprehensive Income (Loss) for the Years ended December 31, 2023, 2022, and 202 1

Consolidated Statements of Stockholders’ Equity for the Years ended December 31, 202 3 , 202 2 , and 202 1

Consolidated Statements of Cash Flows for the Years ended December 31, 202 3 , 202 2 , and 202 1

7 unchanged sentences

8-K 001-39206 3.1 2/10/2020

3.2 Amended and Restated Bylaws

3.2 Amended and Restated Bylaws of Schrödinger, Inc.

8-K 001-39206 3.1 4/13/2023

6 unchanged sentences

10.1 Amended and Restated Investors’ Rights Agreement, dated as of November 9, 2018, by and among the Registrant and the other parties thereto, as amended

S-1/A 333-235890 10.1 1/27/2020

10.2+ 2010 Stock Plan, as amended

15 unchanged sentences

S-1/A 333-235890 10.6 1/27/2020

10.9+ Third Amended and Restated Director Compensation Policy

10.9+ Fourth Amended and Restated Director Compensation Policy

10-Q 001-39206 10.3 5/4/2023

1 unchanged sentence

S-1 333-235890 10.8 1/10/2020

10.11+ Amended and Restated Executive Severance and Change in Control Benefits Plan, as amende d

10.11+ Amended and Restated Executive Severance and Change in Control Benefits Plan, as amended

8-K 001-39206 10.2 8/18/2022

3 unchanged sentences

8-K 001-39206 10.1 8/18/2022

10.14+ Employment Agreement, dated November 14, 2018, by and between the Registrant and Joel Lebowitz

S-1 333-235890 10.11 1/10/2020

Employment Agreement, dated March 17, 2003, by and between the Registrant and Jenny Herman

10.16+ Transition, Separation and Release of Claims Agreement, dated as of February 28, 2022, by and between the Registrant and Joel Lebowitz

8-K 001-39206 10.1 3/2/2022

10.17+ Consulting Agreement, dated as of February 28, 2022, by and between the Registrant and Joel Lebowitz

8-K 001-39206 10.2 3/2/2022

001-39206 10.15

10.15+ Employment Agreement, dated May 14, 2018, by and between the Registrant and Karen Akinsanya

6 unchanged sentences

S-1 333-235890 10.19 1/10/2020

E mployment Agreemen t, dated July 28, 2023, by and between the Re g i strant and Margaret Dugan

Consultant Agreement, dated July 1, 1999, between the Registrant and Richard A.

23 unchanged sentences

S-1 333-235890 10.29 1/10/2020

10.34† Services Agreement, dated June 25, 2013, between D.E.

Shaw India Software Private Limited and Schrödinger, LLC, as amended

S-1 333-235890 10.30 1/10/2020

10.35† License and Software Development Agreement, dated March 14, 2013, by and between D.

Shaw Research LLC and Schrödinger, LLC

S-1 333-235890 10.31 1/10/2020

10.36† Amended and Restated License and Software Development Agreement, dated May 20, 2014, by and between D.

Shaw Research, LLC and Schrödinger, LLC

S-1 333-235890 10.32 1/10/2020

10.32+ Global Bonus Plan

2 unchanged sentences

10-Q 001-39206 10.2 8/10/2020

Amendment #1 to the Independent Contractor Agreement, dated August 14, 2023, by and between the Registrant and Gates Ventures, LLC

001-39206 10.1 11/1/2023

Collaboration and License Agreement, dated November 22, 2020, by and between the Registrant and Bristol-Myers Squibb Company

1 unchanged sentence

First Amendment to Collaboration and License Agreement, dated December 21, 2022, by and between the Registrant and Bristol-Myers Squibb Company

001-39206 10.40 2/28/2023

10.37+ 2021 Inducement Equity Incentive Plan, as amended

5 unchanged sentences

10-Q 001-39206 10.3 8/4/2022

10.44+ Restricted Stock Unit Agreement for U.S.

10.40+ Form of Restricted Stock Unit Agreement for U.S.

Participants under 2021 Inducement Equity Incentive Plan

10-K 001-39206 10.40 3/4/2021

10.45+ Restricted Stock Unit Agreement for Non-U.S.

001-39206 10.1 5/4/2023

10.41+ Form of Restricted Stock Unit Agreement for Non-U.S.

Participants under 2021 Inducement Equity Incentive Plan

10-K 001-39206 10.41 3/4/2021

001-39206 10.2 5/4/2023

Schrödinger, Inc.

13 unchanged sentences

10-Q 001-39206 10.7 8/4/2022

10.47+ Sales Agreement, dated as of May 24, 2023, by and between the Registrant and SVB Securities LLC

001-39206 1.1 5/24/2023

21.1 Subsidiaries of the Registrant

001-39206 21.1 2/28/2023

23.1 Consent of KPMG LLP, independent registered public accounting firm

5 unchanged sentences

Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

97.1+ Schrödinger , Inc .

Clawback Policy

101.INS Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

40 unchanged sentences

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 9A. Controls and Procedures