Schrödinger Earnings Call: Growth Now, Profits Later

Schrodinger, Inc. ((SDGR)) has held its Q1 earnings call. Read on for the main highlights of the call.

Schrödinger’s latest earnings call struck a cautiously optimistic tone as management emphasized strong strategic momentum despite near-term financial pressure. Executives highlighted double-digit ACV growth, a dramatic surge in drug discovery revenue, and advancing clinical assets, while acknowledging margin compression, a sharp drop in contribution revenue, and a sizable net loss that keeps profitability several years away.

ACV Growth Signals Durable Demand

Schrödinger reported Q1 2026 annual contract value of $28.4 million, up 12% from $25.4 million a year earlier, underscoring resilient demand for its software platform. Management reaffirmed full-year ACV guidance of $218 million to $228 million, implying 10% to 15% growth, and issued Q2 ACV guidance of $19 million to $23 million, excluding contribution ACV.

Drug Discovery Revenue More Than Doubles

Drug discovery revenue surged to $22.9 million in Q1 2026 from $10.2 million in Q1 2025, an increase of about 124% year over year. The jump was driven largely by accelerated recognition of deferred revenue tied to progress in collaboration programs, underscoring the growing commercial impact of Schrödinger’s discovery engine.

Balanced Revenue Mix With Expanding Software Hosted Share

Total revenue for the quarter reached $58.6 million, with software revenue contributing $35.6 million and drug discovery delivering the balance. Hosted software revenue climbed to $12.1 million, representing 34% of software sales versus 24% a year earlier, and 27% on a trailing four-quarter basis, illustrating the company’s shift toward recurring, usage-based models.

Hosted Licensing Transition Gains Traction

Management pointed to broad-based growth from usage scale-ups, new customers, and new products as evidence that the hosted model is gaining acceptance. Hosted contracts accounted for roughly one-third of software revenue in the quarter, and the company targets about 75% hosted mix over three years, aided by converting some multiyear on-premise deals to hosted ahead of renewal.

Bunsen AI Co-Scientist Poised To Boost Utilization

The company announced that Bunsen, its agentic AI “co-scientist,” will enter early access this summer, after showing strong productivity gains in internal use. Management expects Bunsen to drive higher utilization of compute-intensive workflows and support throughput-based licensing, creating a new layer of monetization on top of its existing software stack.

Therapeutics Deals Underscore Platform Value

Schrödinger’s platform received fresh validation from Eli Lilly’s announced acquisition of Ajax Therapeutics, a company co-founded by Schrödinger in which it holds about 6% equity. Management noted it has now participated in seven major transactions or exits across co-discovered molecules, realizing close to $700 million in historical cash from equity and business development activities, with additional potential milestones and royalties ahead.

Clinical Programs Show Promising Early Data

In its wholly owned pipeline, Schrödinger reported encouraging Phase 1 results for SGR3515, a WE1 inhibitor, which was generally well tolerated on intermittent dosing and showed a 65% disease control rate at doses of at least 100 mg. SGR1505, a MORT1 inhibitor, demonstrated a 100% response rate with durable responses in Waldenström’s macroglobulinemia and benefits from U.S. regulatory fast track and orphan drug designations.

Cost Controls Support a Solid Cash Runway

Total operating expenses declined 4% year over year to $78 million in Q1 2026, reflecting tightening cost discipline while still funding growth initiatives. The company ended the quarter with $406 million in cash and marketable securities and expects full-year 2026 operating expenses to come in below 2025, with only about $10 million to $15 million required to complete winding-down clinical R&D.

Software Margins Squeezed by Hosted Shift

Software gross margin fell to 69% in Q1 2026 from 80% in the prior-year period, a drop of 11 percentage points that management tied mainly to the accelerated shift to hosted licensing. Because hosted revenue is recognized ratably rather than upfront, the transition depresses reported software margins in the near term even as it builds a more predictable recurring base.

Contribution Revenue Drops Post-Grant

Contribution revenue declined sharply to just $0.1 million from $4.3 million a year ago, a roughly 98% slide following the completion of initial Gates Foundation funding for a predictive toxicology initiative. While this line item is small in absolute terms, the abrupt fall contributed to noise in the year-over-year revenue comparison and underscores the lumpy nature of grant-related income.

Net Loss and Profitability Still Years Away

Schrödinger posted a net loss of $60 million for the quarter and remains EBITDA-negative, with no immediate improvement in operating profitability. Management continues to target profitability around 2028, relying on growing ACV, expanding hosted penetration, and increasing drug discovery and milestone revenues to gradually absorb the company’s fixed cost base.

Revenue Recognition Headwinds Cloud Near-Term Results

The move from upfront on-premise software licenses to ratable hosted contracts is creating a near-term drag on reported revenue, even as underlying demand and ACV continue to rise. Management cautioned that this accounting shift, combined with variability in collaboration and contribution revenue, will increase short-term volatility in recognized revenue metrics.

Other Expense and Ajax Upside Introduce Uncertainty

Total other expenses reached $11 million in the quarter, driven by fair value changes in equity investments along with interest-related items. The timing and size of potential cash proceeds from Schrödinger’s roughly 6% equity stake in Ajax following its sale to Lilly remain unspecified and were excluded from guidance, leaving investors with possible upside but limited visibility.

Guidance Reinforces Confidence Despite Volatility

Management reaffirmed full-year 2026 ACV guidance of $218 million to $228 million, implying a healthy 10% to 15% growth range, and set Q2 ACV guidance at $19 million to $23 million excluding contribution. The company projects drug discovery revenue of $55 million to $65 million for the year, continued ramp in hosted software toward a multi-year 75% mix, lower operating expenses than 2025, and clinical R&D spending of about $10 million to $15 million as trials wind down.

Schrödinger’s call painted a picture of a company trading near-term earnings and margin clarity for long-term growth in recurring revenue and drug discovery economics. With strong ACV momentum, a rapidly expanding hosted footprint, promising AI capabilities, and a validated therapeutics platform, management’s message was that the strategic trajectory remains intact even as investors navigate continued losses and revenue volatility.