Schrödinger, Inc.

Schrödinger licenses molecular-modeling software used to design drugs and materials. It also works on drug-discovery programs with pharmaceutical partners and earns research fees, milestone payments, potential royalties and equity interests. The New York company trades on Nasdaq as SDGR.

Its software customers increasingly use hosted products rather than licenses installed on their own systems. Hosted revenue is recognized over the contract term; on-premise license revenue is generally recognized upfront. Annual contract value, or ACV, tracks billed commitments with upfront multiyear contracts spread across their term.

Two unnamed customers accounted for 20% and 15% of consolidated Q3 2026 revenue. Drug-discovery milestones can make individual quarters uneven.

Results and the underlying cash picture

Q3 2026 software revenue rose 6% to $38.2 million. Hosted revenue grew 49% to $17.2 million and made up 45% of quarterly software revenue. Software gross margin was 75%, compared with 77% a year earlier. Drug-discovery revenue rose to $24.2 million from $13.0 million, including a $12 million milestone from Structure Therapeutics.

Operating expenses fell 13% to $64.4 million. Research and development expense declined to $34.1 million from $42.8 million, largely through reduced external program costs. The Structure Therapeutics shareholding lost $15.3 million in market value; that paper loss explains much of the gap between better operating results and a wider reported net loss.

Expectations over time

In August, Schrödinger forecast 2026 ACV of $218 million to $228 million and drug-discovery revenue of $65 million to $75 million. November guidance raises those ranges to $222 million to $232 million and $75 million to $85 million. Operating expenses are still expected to be below 2025.

Q3 total ACV was $44.7 million, up 17%.

The longer-term objective remains positive adjusted EBITDA by the end of 2028. This measure removes interest, taxes, depreciation and amortization, share-based compensation, investment gains and losses and specified other costs. Q3 2026 adjusted EBITDA was a loss of $16.8 million, versus a $33.6 million loss a year earlier.

Cash, financing and commitments

For the first nine months of 2026, operating activities used $96.5 million, versus a $30.0 million inflow in 2025. The prior period included a $150 million Novartis upfront payment received in January 2025. Equity-investment disposals supplied a separate $67.5 million of investing cash in 2026.

At September 30, cash and equivalents were $247.0 million, marketable securities were $119.4 million and restricted cash was $7.0 million. Management expects existing cash and marketable securities to fund operations and capital spending for at least the next 24 months.

Future lease payments totaled $150.3 million. The company also had an $82 million minimum cloud-computing commitment under a three-year agreement entered in December 2025. The earlier minimum commitment for dedicated research space in India ended following a Q3 amendment.

Its existing program for selling new shares at market prices had $241.1 million of unused capacity at September 30. No shares were sold under that program in the first nine months of 2026 or 2025.

Transactions and the clinical-development shift

Lilly completed its acquisition of Ajax Therapeutics in June 2026. Schrödinger, an Ajax investor and collaborator, received about $57.2 million, including $47.2 million for its equity interest and a $10 million collaboration milestone. A further $0.5 million came from an escrow release in September.

In August, Schrödinger exchanged two early-stage programs and related licenses for an equity interest in Tectora Therapeutics, which it co-founded with New Enterprise Associates and RA Capital Management. The investment was carried at $3.3 million in September and is not consolidated. Schrödinger had provided no cash funding and had no obligation to fund Tectora's losses.

A September amendment replaced certain Novartis collaboration programs with two new programs. The amended collaboration carries up to $1.424 billion in potential milestones. No milestone revenue was recognized under the agreement in the first nine months of 2026.

Schrödinger is completing Phase 1 dose-escalation trials for SGR-1505 and SGR-3515 and seeking partners for later development. It does not plan additional independent clinical trials. A separate program, SGR-2921, was discontinued in August 2025 following safety findings. In November 2026, the company corrected an abstract to clarify that an SGR-1505 combination study had not started.

The next checks are the higher annual contract target, hosted-software revenue, research spending and the timing of partnership payments. These show how far the operating business can move toward the 2028 earnings objective.