Schrödinger, Inc. 10-Qquarter ended 2026-03-31
Restructuring
On-premise license declines hit software revenue; Lilly’s decision to stop a program accelerated drug-discovery revenue recognition.
Filed 2026-05-05 16:09 ET
Key figures · Q1 FY2026 · period ended 2026-03-31
- Revenue$58.6MYoY −1.6%QoQ −32.8%
- Operating income−$48.8MYoY +4.1%QoQ −184.4%
- Net income−$60.0MYoY −0.4%Previous quarter $32.5M
- Total assets$634.2MYoY −14.6%QoQ −12.7%
- Total debtNo debt1Year ago $0Previous quarter $0
- Shareholders' equity$313.5MYoY −16.1%QoQ −13.9%
- Tangible book value$308.8M2YoY −16.3%QoQ −14.1%
Notes (2)
- Total debt: About the summary: The summary's $156M is lease obligations, while the claim's $0 is total debt, which excludes operating leases.
- Tangible book value: No intangible assets are reported.
How this filing reads
- Health+0.5$406M liquidity supports an expected runway of at least 24 months against $17.3M quarterly free-cash-flow use.
- Momentum−0.2Revenue fell 1.6% and gross margin declined to 50.4%, while operating loss narrowed to $48.8M.
- Outlook+0.2Management expects a 24-month runway and $70M savings while shifting clinical development to partners.
Executive Summary
Schrödinger’s Q1 2026 revenue was broadly flat, but its composition changed sharply: software revenue fell as on-premise licenses declined, while drug-discovery revenue more than doubled. Lower operating expenses narrowed the operating loss, yet an equity-investment valuation loss kept the GAAP net loss near last year’s level. A $406M liquidity position gives management an expected runway of at least 24 months as it scales back independent clinical development and seeks partners. For investors, the central question is whether growing hosted-software demand and collaborations can replace upfront license revenue and episodic drug-discovery recognition with durable cash generation.
Key Financial Highlights
| Metric | Q1 2026 or 3/31/2026 | Investor interpretation |
|---|---|---|
| Revenue | $58.6M, down 1.6% Y/Y | Drug-discovery growth offset most of the software decline. |
| Gross profit | $29.5M vs $31.1M Y/Y | Margin fell to 50.4% from 52.3%; software margin pressure outweighed drug-discovery improvement. |
| Operating loss | $(48.8)M vs $(50.9)M Y/Y | Lower operating expenses modestly reduced the underlying loss. |
| GAAP net loss | $(60.0)M vs $(59.8)M Y/Y | A non-operating investment loss offset the operating improvement. |
| Operating cash flow (OCF) / free cash flow (FCF) | $(14.8)M / $(17.3)M | Cash use was substantially less than the net loss, aided by collections of receivables. |
| Cash, restricted cash and marketable securities | $406M | Supports management’s expected operating and capital-spending runway of at least 24 months. |
| Total assets | $634M | Measured at quarter-end. |
| Total equity / tangible common equity | $314M / $309M | Tangible common equity is equity less reported goodwill. |
- Revenue mix: Software products and services fell 21% Y/Y to $35.6M; drug discovery rose 124% to $22.9M. On-premise licenses fell 44% to $14.2M, while hosted software rose 11% to $12.1M; hosted contracts generally recognize revenue over time rather than upfront.
- Earnings quality: The $13.5M fair-value loss on equity investments weighed on GAAP earnings. Q1 2025 OCF of $144M benefited from an unusually large receivables decline, making the cash-flow reversal chiefly a working-capital comparison; Q1 2026 receivables also declined $55.8M, partly offset by a $29.6M deferred-revenue decline.
- Capital and dilution: Stock-based compensation was $9.07M, down from $11.6M Y/Y. Common shares outstanding increased by 0.868M during the quarter; no shares were sold under the at-the-market program, which had $241M of remaining capacity.
Business Developments
The software transition changes reported growth before it necessarily changes customer demand: annual contract value rose to $28.4M from $25.4M Y/Y even as recognized software revenue fell. Higher cloud costs also reduced software gross margin to 69% from 80%. Drug-discovery segment gross profit turned positive, but its revenue included accelerated recognition after Lilly chose not to further develop one program, illustrating why quarterly growth is not a dependable run rate.
Novartis collaboration revenue rose to $11.7M from $5.7M Y/Y. Its agreement offers up to $2.27B in milestones, but no milestone revenue was recognized in Q1. Remaining performance obligations fell 12% from year-end to $211M; management expects to recognize 55% over the next 12 months, with software obligations converting faster than drug-discovery obligations.
Management plans to complete ongoing Phase 1 trials of SGR-1505 and SGR-3515, seek partners for both, and avoid initiating further independent clinical trials. The clinical-development wind-down and earlier restructuring are expected to save $70M when fully completed, concentrating resources on software and partnered discovery. Initial SGR-3515 data released in April showed stable disease in 11 of 17 evaluable patients at doses of 100 mg or higher, alongside treatment-related adverse events in 72.5% of 40 safety-evaluable patients.
Risk Assessment
- Revenue timing and concentration: Software contract timing and partner-controlled research make results uneven; two customers supplied 22% and 18% of Q1 revenue.
- Persistent losses and financing: A $60.0M quarterly net loss and $689M accumulated deficit leave future funding needs dependent on spending and collaboration outcomes, despite the current cash runway.
- Clinical and partner execution: Early-stage programs face safety and approval risk, while partners can discontinue development; Lilly ended an additional target in March, and potential milestones may never be earned.
- Software delivery and competition: Hosted growth increases reliance on third-party cloud providers and exposes margins and customer retention to service failures, computing costs and competing approaches.
- Fixed commitments: Lease obligations of $156M and a three-year $82.0M minimum cloud-computing commitment constrain flexibility if revenue develops more slowly than planned.
- Investment valuation: The retained Structure Therapeutics stake produced a $14.5M mark-to-market loss in Q1, so equity holdings can materially move reported earnings independently of operations.
Strategic Outlook and Investor Actionables
Schrödinger is exchanging some near-term upfront software recognition and independent drug-development spending for hosted contracts, collaboration opportunities and a longer cash runway. The investment case improves if recurring software growth and partner progress become visible without a sustained rise in cash use.
- Software transition: Monitor hosted revenue and annual contract value against on-premise declines and software gross margin; sustained growth without further margin erosion would support the strategy.
- Collaboration conversion: Monitor remaining performance obligations, recognized drug-discovery revenue and actual milestones; partner decisions or one-time recognition should not be mistaken for recurring growth.
- Cash and pipeline: Monitor OCF, the expected $70M savings, Phase 1 safety data and partnering agreements; persistent cash use or inability to secure partners would weaken the runway thesis.
Figures are computed from the filing's XBRL data; the summary and scores are written by an AI model reading the filing.
Model 005 · prompt 9e47f58d3c