SDGR — Schrödinger, Inc.

Summary of Schrödinger, Inc. (SDGR) Q1 2026 Earnings Call

1. Key Financial Results and Metrics

• Annual Contract Value (ACV): $28.4 million, up 12% from $25.4 million in Q1 2025.
• Total Revenue: $58.6 million, with software revenue at $35.6 million and drug discovery revenue at $22.9 million (up from $10.2 million in Q1 2025).
• Hosted Revenue: $12.1 million, representing 34% of software revenue, an increase from 24% in Q1 2025.
• Gross Margin: Software gross margin decreased to 69% from 80% in Q1 2025 due to the transition to hosted licensing.
• Net Loss: $60 million for the quarter.
• Operating Expenses: $78 million, down 4% from $82 million in Q1 2025.
• Cash Position: Strong balance sheet with $406 million in cash and marketable securities.

2. Strategic Updates and Business Highlights

• Therapeutics Portfolio: Highlighted by Lilly's acquisition of Ajax Therapeutics for $2.3 billion, in which Schrödinger holds a 6% equity stake.
• Predictive Toxicology Initiatives: Positioned to align with FDA goals, enhancing the company's relevance in drug discovery.
• Bunsen AI Launch: An upcoming agentic AI co-scientist designed to enhance molecular discovery workflows, expected to democratize access to advanced technology.
• Transition to Hosted Licensing: Positive momentum in converting customers to hosted licenses, with some early conversions ahead of renewal dates.

3. Forward Guidance and Outlook

• 2026 ACV Guidance: Expected to be between $218 million and $228 million, representing 10% to 15% growth.
• Drug Discovery Revenue Guidance: Anticipated between $55 million and $65 million for the year, acknowledging quarterly variability.
• Operating Expenses: Expected to be lower than in 2025, with continued investment in sales and marketing.
• Q2 2026 ACV Guidance: Projected between $19 million and $23 million, excluding contribution ACV.

4. Bad News, Challenges, or Points of Concern

• Declining Contribution Revenue: Contribution revenue fell to $0.1 million from $4.3 million in Q1 2025, primarily due to the completion of initial funding from the Gates Foundation.
• Variable Revenue Recognition: The shift to hosted licensing creates near-term headwinds on recognized revenue, impacting short-term financial visibility.
• Macroeconomic Uncertainty: While there is an improving funding environment for biopharmaceuticals, overall economic conditions remain uncertain.

5. Notable Q&A Insights

• Bunsen AI Impact: Management emphasized that Bunsen is expected to significantly enhance productivity and efficiency in molecular discovery, potentially increasing demand for their technology.
• Customer Transition to Hosted Licensing: Positive early results in transitioning customers from on-premise to hosted licenses, with expectations for continued growth in this area.
• M&A Activity in Biotech: Management noted increased interest in partnerships and collaborations, reflecting a more favorable environment compared to previous quarters.
• R&D Focus: The company is prioritizing partnerships over internal drug development, with a focus on maximizing the value of existing collaborations.

Overall, Schrödinger, Inc. reported strong financial growth in Q1 2026, driven by its software and drug discovery segments, while navigating challenges related to revenue recognition and market conditions. The company remains optimistic about future growth through strategic initiatives and technological advancements.