Schrodinger Q1 Earnings Call Highlights

Key Points

• Schrödinger is accelerating its shift to hosted software licensing, reporting Q1 ACV of $28.4 million (up 12%) and trailing four‑quarter ACV of $201 million, with hosted revenue now at 34% of software revenue and a target of reaching 75% hosted within three years.
• Q1 total revenue was $58.6 million with drug discovery revenue rising to $22.9 million (from $10.2M a year earlier), while software gross margin compressed to 69% due to the hosted transition; management reiterated 2026 guidance of ACV $218–228 million and drug discovery revenue $55–65 million.
• Corporate catalysts include Eli Lilly’s planned $2.3 billion acquisition of Ajax (Schrödinger holds ~6% equity) that could produce cash and a non‑operating gain on closing, and the upcoming early access release of agentic AI “Bunsen,” which management says could expand throughput‑based licensing demand.

Schrodinger NASDAQ: SDGR reported first-quarter 2026 results and highlighted progress in its transition to hosted software licensing, growth in annual contract value (ACV), and recent business development activity tied to its drug discovery collaborations.

First-quarter metrics and hosted transition

CEO Ramy Farid said the company was “off to a strong start,” reporting first-quarter ACV of $28.4 million, up 12% from the year-ago period. CFO Richie Jain added that trailing four-quarter ACV reached $201 million and said growth was “primarily driven by our top 20 pharma customers” expanding platform access, onboarding new products, and integrating Schrodinger’s tools more deeply into R&D workflows.

Total revenue in the quarter was $58.6 million. Software revenue was $35.6 million, and Jain said hosted revenue contributed $12.1 million, or 34% of software revenue, compared with 24% in the first quarter of 2025. On a trailing four-quarter basis, hosted revenue represented 27% of software revenue. Management emphasized that recognized software revenue can be “highly variable” during the accelerated shift to hosted contracts because hosted revenue is recognized ratably over the contract term rather than upfront.

On the hosted transition, Jain said the company is “aiming to transition from on-prem to hosted upon the contract date,” with new customers deployed on hosted “in the first instance.” He reiterated a longer-term target “getting to 75% by the 3-year period.” Farid and Jain also noted “limited cases” where multi-year on-premise deals were converted to hosted ahead of renewal dates, with Jain saying the impact was modest in Q1 but expected to become more visible from Q2 onward.

Software gross margin was 69%, down from 80% in Q1 2025, which Jain attributed to the planned accelerated transition to hosted licensing.

Contribution revenue reclassification and predictive toxicology interest

Starting this quarter, the company began reporting contribution revenue as a separate line item for additional visibility into software and drug discovery performance. Jain said historical results were reclassified because contribution had previously been included within software and drug discovery revenue.

Contribution revenue was $0.1 million in Q1 2026, down from $4.3 million in Q1 2025. Jain said the decline was driven by completion of initial funding from the Gates Foundation supporting Schrodinger’s predictive toxicology initiative.

Farid said Schrodinger expects to benefit from an evolving regulatory environment and described predictive toxicology as aligned with FDA efforts to reduce animal testing and expand computational methods. In response to an analyst question on the initiative’s commercial traction, Farid said customer feedback “continues to be really very positive,” adding that prospective testing by customers is validating results the company observed during development and internal use.

Drug discovery revenue increased; Ajax deal cited as validation

Drug discovery revenue was $22.9 million in the quarter, up from $10.2 million a year earlier. Jain attributed the increase to “accelerated recognition of deferred revenue associated with the continued progress” of collaboration programs and “the discontinuation of one collaboration program.” Farid separately cited “drug discovery revenue of $23 million” as a significant contributor to quarterly performance.

Management also discussed Eli Lilly’s announced $2.3 billion planned acquisition of Ajax Therapeutics, a company Schrodinger co-founded. Farid said Schrodinger holds an approximately 6% equity stake in Ajax and called the deal “the latest example of a multi-billion dollar deal for a Schrödinger co-developed molecule.”

President and Head of Therapeutics R&D Karen Akinsanya said Ajax’s AJ11095, described as “a first-in-class type 2 JAK inhibitor,” was “the primary driver of the announced deal.” She also pointed to prior transactions and liquidity events involving molecules Schrodinger co-discovered, including Lilly’s acquisitions of Morphic, Petra, and Ajax, the sale of Nimbus’ ACC and TYK2 inhibitors, and the IPOs of Relay and Structure.

On financial reporting implications from the Ajax transaction, Jain said the sale was “not contemplated” in guidance. He said the primary impact would be to cash when the deal closes, noting Schrodinger ended the quarter with $406 million in cash and marketable securities and “anticipate receiving our portion of the upfront cash payment” upon closing. Jain added that any equity proceeds would be reflected on the balance sheet, while in response to another question he said he would expect the equity stake impact to run through the P&L as a non-operating gain.

Wholly owned pipeline updates and partnering focus

Akinsanya reviewed clinical updates on two wholly owned programs. She said Schrodinger presented initial clinical data in April at the AACR annual meeting for SGR-3515, a Wee1/Myt1 inhibitor, from an ongoing phase I dose escalation study focused on safety, tolerability, and pharmacokinetics. According to Akinsanya, SGR-3515 was “generally well-tolerated” on an intermittent schedule of three days on and 11 days off, and initial biomarker data supported the company’s dual-inhibition hypothesis. She reported “encouraging early anti-tumor activity,” citing a 65% disease control rate among evaluable patients treated at doses of 100 milligrams or higher.

She also said the company remains encouraged by SGR-1505, a MALT1 inhibitor, where it continues to see a 100% response rate and durable responses in patients with Waldenström’s macroglobulinemia. Akinsanya noted SGR-1505 has both FDA Fast Track and Orphan Drug designations.

As the phase I studies conclude, Akinsanya said Schrodinger is “actively exploring partnership opportunities” for mid- and late-stage development of both assets. Jain said clinical activities are expected to be “largely complete by the end of 2026,” with approximately $10 million to $15 million of R&D expected in full-year 2026 “as we wind down these activities and seek partners.”

Agentic AI “Bunsen,” compute utilization, and licensing model

Farid said Schrodinger plans to release an early access version this summer of Bunsen, an “agentic AI co-scientist” designed to autonomously execute complex molecular discovery workflows. He said Schrodinger’s material science and therapeutics teams have already been using Bunsen internally, and that it has had an “extraordinary” impact on productivity for both expert and non-expert users.

In Q&A, Farid linked Bunsen to the company’s throughput-based licensing approach, saying increased automation could expand demand and “the need for our customers to license that technology on a larger scale.” CTO and COO Patrick Lorton added that customers are already using more general agentic AI tools alongside Schrodinger’s technology, but said Schrodinger built Bunsen because its tools are “such an expert tool” and require a model trained specifically on how to use them efficiently. Lorton said the company is “building an agentic layer on top of LLMs” and is not tied to a single large language model provider; he said the company “regularly work[s] with, and talk[s] with Anthropic” as Bunsen is built.

Asked about go-to-market and pricing, Farid said details are still being worked out during early access rollouts with close partners, including validation efforts to maximize reliability. He said the company expects the technology to become “ubiquitous” and broadly available to customers over time, but said pricing decisions will depend on feedback during the early access period.

Expenses, profitability path, and 2026 guidance

Operating expenses in Q1 were $78 million, down 4% from $82 million a year earlier. Jain attributed the decrease to efficiency measures and disciplined expense management across R&D and G&A, while continuing to invest in sales and marketing. Other expenses totaled $11 million, which Jain said was primarily due to changes in fair value of equity investments and net interest income/expense items. Net loss was $60 million, unchanged from Q1 2025.

Schrodinger maintained its full-year 2026 guidance. Jain reiterated expectations for:

• ACV of $218 million to $228 million (10% to 15% growth)
• Drug discovery revenue of $55 million to $65 million, with quarterly variability due to milestone and collaboration timing

For Q2 2026, the company guided to $19 million to $23 million in ACV, explicitly excluding contribution ACV, and noted that Q2 2025 ACV of $23.3 million included $5 million of contribution ACV related to the Gates Foundation grant. Jain said the full-year ACV range could include some contribution ACV, but the company did not quantify that component.

About Schrodinger NASDAQ: SDGR

Schrödinger, Inc is a life sciences and materials discovery company that specializes in the application of physics-based computational platforms to accelerate drug discovery and advanced materials design. Founded in 1990 by Professor Richard A. Friesner, Schrödinger has developed a suite of proprietary software tools—such as Maestro for molecular modeling, Glide for molecular docking and Jaguar for quantum chemistry calculations—that enable scientists to predict molecular behavior with high accuracy.

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