SDGR — Schrödinger, Inc.

Summary of Schrodinger's Q4 2025 Earnings Call

1. Key Financial Results and Metrics

• Revenue: Schrodinger reported total revenue of $256 million for 2025, reflecting a 23% increase year-over-year.
• Software Revenue: Generated $199.5 million in software revenue, with an annual contract value (ACV) of $198.5 million, marking an 11% increase in software revenue and a 4% growth in ACV.
• Drug Discovery Revenue: Increased to $56.4 million, more than doubling from the previous year.
• Net Loss: Reported a net loss of $103 million, improved from a loss of $187 million in 2024.
• Cash Position: Maintained a strong cash balance of $402 million.
• Gross Margin: Software gross margin decreased to 74% from 80% in 2024, while total operating expenses were reduced by 9% to $310 million.

2. Strategic Updates and Business Highlights

• Software Business Growth: The company is transitioning to a primarily hosted model, with 23% of software revenue coming from hosted contracts in 2025. The goal is to reach 75% hosted revenue by 2028.
• Product Development: Launched a beta version of a predictive toxicology solution, which received positive feedback and is expected to contribute to future growth.
• Therapeutics Portfolio: Continued progress in collaborative drug discovery programs, with multiple molecules advancing in clinical pipelines, including partnerships with Structure Therapeutics and Nimbus.
• AI Integration: Schrodinger is leveraging AI to enhance its computational platform, viewing it as a significant growth driver.

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: Anticipated to be between $55 million and $65 million for 2026.
• Operating Expenses: Expected to decrease compared to 2025 due to cost reduction initiatives.
• Long-Term Goals: Targeting positive adjusted EBITDA by the end of 2028.

4. Bad News, Challenges, or Points of Concern

• Revenue Recognition Impact: The transition to hosted contracts is expected to create variability in revenue recognition, potentially compressing gross margins and adjusted EBITDA in the near term.
• Net Dollar Retention: Fell to 100% from an average of over 110% due to a challenging funding environment in pharma and biotech, indicating difficulties in expanding existing customer relationships.
• Customer Acquisition: Two of the largest customers were acquired, which reduced the customer count but retained throughput and value. This could signal potential volatility in customer relationships.

5. Notable Q&A Insights

• AI Adoption: Management noted that the rise of agentic AI is a tailwind for their business, increasing demand for their software solutions.
• Customer Transition: Customers are increasingly favoring hosted deployments, which are expected to lead to a smoother revenue profile.
• Predictive Toxicology: Anticipated to drive growth both as an add-on for existing customers and as a new offering for previously untapped markets.
• Future Collaborations: Management emphasized ongoing discussions with potential pharma partners, indicating a proactive approach to leveraging their pipeline assets.

Overall, Schrodinger demonstrated strong financial performance in 2025 despite macroeconomic challenges, while strategically positioning itself for future growth through software innovation and a focus on hosted solutions. However, the transition may lead to short-term revenue variability and challenges in customer retention.