Schrödinger, Inc. (SDGR) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary shows solid financial performance with growth in software and materials science revenue, positive customer feedback on new products, and strategic partnerships. The Q&A section highlights ongoing collaborations, AI integration, and a positive outlook on hosted solutions. Despite some unclear responses, the overall sentiment is positive due to revenue growth, strategic initiatives, and optimistic guidance, suggesting a likely stock price increase of 2% to 8% over the next two weeks.
Key Financial Performance
Total Revenue $256 million in 2025, representing 23% growth year-over-year. The growth was achieved despite tight pharma budgets and challenging biotech capital markets.
Software Revenue $199.5 million in 2025, an 11% increase year-over-year. Growth was driven by an increase in hosted and maintenance revenues.
Drug Discovery Revenue $56.4 million in 2025, more than doubling compared to the prior year. Growth reflects successful execution across collaborative programs and progression of molecules.
Software Gross Margin 74% in 2025, down from 80% in 2024. The decrease was due to higher costs associated with contribution revenue from grants.
Operating Expenses $310 million in 2025, a 9% decrease compared to 2024. This was due to rationalizations in R&D and G&A from cost reduction initiatives, offset by a modest increase in sales and marketing.
Net Loss $103 million in 2025, compared to $187 million in 2024. The improvement was driven by cost reductions and increased revenue.
Cash Position $402 million at the end of 2025, providing a strong balance sheet to invest in growth.
Q4 2025 Software Revenue $69.3 million, a 13% decrease compared to Q4 2024. The decline was due to upfront revenue recognition from a large multi-year deal in Q4 2024, while Q4 2025 saw deferred revenue recognition due to hosted deployments.
Total ACV $198.5 million in 2025, a 4% increase year-over-year. Growth was driven by a 15% increase in ACV from top 20 pharma relationships and 7% growth in commercial ACV.
Materials Science Business Revenue $17 million in 2025, up from $15 million in 2024. Growth was driven by the introduction of new capabilities.
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Operating Highlights
Predictive Toxicology Solution: Released the beta version of this solution in 2025, aimed at enhancing safety predictions in drug discovery.
Therapeutics Portfolio: Advanced proprietary and collaborative programs, including molecules co-invented with partners progressing in clinical pipelines.
Market Expansion in Biologics and Materials: Expanded platform capabilities for biologics and materials science, targeting new markets such as toxicology, synthetic chemistry, and drug formulations.
Hosted Software Transition: Accelerated transition to hosted software solutions, aiming for 75% hosted revenue by 2028 to meet customer preferences and enhance predictability.
Revenue Growth: Achieved 23% total revenue growth in 2025, with $256 million in revenue and $402 million in cash.
Expense Discipline: Reduced operating expenses by 9% in 2025, reflecting cost rationalizations in R&D and G&A.
AI and Physics Integration: Leveraged a physics-first approach combined with AI to enhance molecular discovery, setting a standard in the industry.
Hosted Revenue Model: Strategic shift to hosted revenue model for software, aiming for more predictable financial outcomes and faster deployment.
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Risk or Challenges
Pharma and Biotech Budget Constraints: The company faced a challenging backdrop of tight pharma budgets and challenging biotech capital markets in 2025, which impacted the ability to expand relationships and grow revenue.
Transition to Hosted Revenue Model: The accelerated transition to a hosted revenue model is expected to result in near-term revenue recognition challenges, compressing gross margins and adjusted EBITDA, despite no impact on cash flows or ACV.
Customer Retention and Growth: Net dollar retention fell to 100% from an average of over 110% in prior years, reflecting difficulties in expanding relationships due to the challenging environment for pharma and biotech in 2025.
Revenue Variability in Drug Discovery: Drug discovery revenue is subject to quarterly variability due to the milestone-driven nature of the business, which could lead to unpredictable financial performance.
Cost Pressures and Expense Management: Operating expenses were reduced by 9% in 2025, but the company must maintain expense discipline to achieve its long-term financial objectives, which could limit flexibility in investments.
Dependence on Collaborative Programs: The company relies heavily on collaborative programs for drug discovery revenue, which introduces risks related to partner performance and milestone achievements.
Market Adoption Challenges: The transition to hosted contracts and the introduction of new software KPIs may face resistance or slower adoption from certain customers, particularly in regions or industries less inclined toward cloud-based solutions.
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Guidance & Outlook
2026 ACV Growth: Schrodinger expects annual contract value (ACV) growth of 10% to 15% for 2026, with a target range of $218 million to $228 million.
Drug Discovery Revenue: The company anticipates drug discovery revenue between $55 million and $65 million for 2026, with variability due to the milestone-driven nature of the business.
Transition to Hosted Revenue Model: Schrodinger is accelerating its transition to a hosted revenue model, targeting 75% hosted revenue by 2028. This shift is expected to result in more predictable revenue and align with industry standards.
Long-Term Financial Objectives: The company aims for 10% to 15% annual software ACV growth, $50 million in annual drug discovery revenue, and positive adjusted EBITDA by 2028.
Phase I Studies for Therapeutics: Schrodinger plans to complete Phase I studies for SGR-1505 and SGR-3515 in 2026, with initial data for the Wee1/Myt1 co-inhibitor expected in the second quarter.
Expansion of Software Platform: The company intends to drive increased adoption of its platform through product innovation and by addressing markets such as biologics, toxicology, synthetic chemistry, and energy storage.
Clinical and Collaborative Programs: Schrodinger expects continued progress in its collaborative programs, with 16 programs eligible for royalties and potential future milestones of up to $5 billion.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:How does the company view the ongoing process of partnering out assets in their pipeline and its impact on the 2028 profit metric?
A:The company views partnering as an ongoing and active component of their business, with regular collaborations and licensing programs from their wholly-owned portfolio. They are in constant conversation with potential pharma partners. However, they are not providing guidance on business development (BD) today. Profitability by 2028 is expected to be driven by 10%-15% annual growth in the software business, $50 million in annual drug discovery revenue, and disciplined operating expenses.
Q:Is there any value baked into the growth for monetizing the predictive toxicology platform?
A:The company expects additional growth from new products, including the predictive toxicology platform, which has received positive feedback and outperformed expectations in beta testing. Growth from predictive toxicology and other new products is included in the 10%-15% growth expectations.
Q:What are the dynamics of the first quarter ACV relative to the full year ACV on the software side?
A:Q1 is typically a smaller quarter following Q4, which is the big renewal season. ACV reflects the value of deals closed in the quarter, while revenue includes deals from prior quarters. The company expects $218-$228 million in ACV for the year, representing 10%-15% growth.
Q:How are customers reacting to the transition to a hosted platform?
A:Customers increasingly prefer hosted deployments, which allow for faster deployment and enhanced support. Currently, 23% of software revenue is hosted, and the company aims to increase this to 75% by 2028. Hosted solutions provide smoother and more predictable revenue profiles.
Q:What is the company's perspective on AI's role in R&D and its impact on their business?
A:The company views AI as a tailwind, increasing demand for their software. They are working with Anthropic to integrate agentic AI with their computational solutions. AI adoption is expected to scale up demand for their technology.
Q:What is the impact of the acquisition of the company's two largest customers?
A:The company views the acquisition of their two largest customers as a positive long-term signal, as it reflects the success of their predict-first approach. They expect to retain throughput and relationships with the acquiring companies.
Q:What is the go-to-market strategy for the predictive toxicology platform?
A:The predictive toxicology platform will be marketed both as an add-on for existing customers and to new customer segments, such as toxicology groups. The company has made investments in sales and marketing to support this strategy.
Q:How does the transition to hosted contracts impact overall blended margins?
A:The transition to hosted contracts has no impact on ACV or cash flows but affects revenue recognition, leading to interim variability in revenue and margins. The company expects gross margins to return to the high 70s in the long term and aims for adjusted EBITDA profitability by 2028.
Q:What assumptions are baked into the 2028 adjusted EBITDA break-even goal?
A:The goal assumes a recovery in the biotech sector to normalized levels over the next three years. The company prioritizes investing in growth over share buybacks.
Q:How does the company define ACV, and how does it differ from reported revenue?
A:ACV reflects the annual value of contracts, while revenue includes recognition from prior quarters. The transition to hosted contracts will result in reduced revenue recognition in the short term but will increase deferred revenue and backlog.
Q:What are the key factors influencing ACV growth by 2028?
A:ACV growth is expected to be driven by recovery in biotech, adoption of AI workflows, new product launches, and expansion in material science.
Q:What actions led to the increase in average ACV for $1 million and above customers?
A:The increase was driven by top 20 pharma customers adopting new products and closing adoption gaps, as well as biotechs embracing a predict-first approach. The company sees significant potential for further growth within this cohort.
Q:Review of Unclear Management Responses
A:Management avoided providing direct answers or clarity on the following: 1) Specific guidance on business development (BD) activities related to partnering assets. 2) Detailed breakdown of ACV growth by customer segment. 3) Revenue guidance for 2026 and specific puts and takes influencing revenue outcomes. 4) Exact impact of hosted contract transitions on revenue beyond general trends.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI
Head
Nimbus
Richie
Takeda
acquisition
adoption platform
class
cohort
deployment
design
discovery portfolio
dollar
drug material
duration contract
expense discipline
generation
ground truth
life science
material science
measure
milestone royalty
modality switch
model
nature
objective
percentage
physic
portfolio program
program royalty
recognition contract
retention
royalty program
sale
software ACV
success
switch program
therapeutic portfolio
transition
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The earnings call summary shows solid financial performance with growth in software and materials science revenue, positive customer feedback on new products, and strategic partnerships. The Q&A section highlights ongoing collaborations, AI integration, and a positive outlook on hosted solutions. Despite some unclear responses, the overall sentiment is positive due to revenue growth, strategic initiatives, and optimistic guidance, suggesting a likely stock price increase of 2% to 8% over the next two weeks.
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