Schrödinger's loss widened. Why did it use less cash?

Schrödinger reported a bigger third-quarter loss even as it used less cash to run the business and raised its annual outlook. A fall in the value of its stake in Structure Therapeutics helps explain the split.

Research by Ticker Byline shows that operating activities used $47.6 million in Q3, down from $61.9 million a year earlier. We isolated the July-to-September quarter by subtracting first-half cash flows from the nine-month totals in the company's filings.

Its operating loss, which excludes investment returns and taxes, narrowed to $26.1 million from $45.9 million. Net loss nevertheless widened to $37.7 million from $32.8 million.

The investment behind the bigger loss

Schrödinger's software and drug-discovery business licenses tools for designing molecules and earns research fees, milestone payments and equity stakes through partnerships. Those shareholdings can move reported earnings separately from its day-to-day operations.

Its Structure Therapeutics holding lost $15.3 million in market value during the quarter. A year earlier, that investment contributed a $9.7 million gain.

The net equity-investment line moved from a $9.7 million gain to a $14.8 million loss, more than offsetting the improvement in operating results. The change in Structure's share price reduced earnings without using cash.

More research revenue, lower clinical costs

Total revenue rose 19% to $64.5 million. Drug-discovery revenue increased to $24.2 million from $13.0 million, helped by a $12 million milestone from Structure Therapeutics.

Software revenue rose 6% to $38.2 million. Hosted software, which customers access through the cloud, grew 49% to $17.2 million. Schrödinger recognizes that revenue over the contract term, rather than booking an on-premise license upfront.

Research and development expense fell 20% to $34.1 million. Much of the decrease came from lower outside research spending, following the end of one drug program in 2025 and less work on two others. Schrödinger plans to complete its ongoing Phase 1 trials and seek partners for further development.

A better quarter within a weaker cash year

For the first nine months, operations used $96.5 million of cash, compared with a $30.0 million inflow a year earlier. The earlier period benefited from a large upfront Novartis collaboration payment.

Separately, sales and disposals of equity investments supplied $67.5 million of investing cash this year. At September 30, Schrödinger held $373.4 million in cash, restricted cash and marketable securities, including $7.0 million of restricted cash.

The quarter also benefited from a smaller decline in deferred revenue, or money collected ahead of recording revenue. A larger buildup of unpaid customer bills pulled in the other direction.

Management expects its existing cash and marketable securities to cover operating expenses and capital spending for at least the next 24 months.

What the raised targets measure

Schrödinger now expects annual contract value of $222 million to $232 million, up from August's $218 million to $228 million forecast. ACV measures software commitments on the company's billing basis, spreading upfront multiyear contracts across their term. It differs from revenue recognized in the accounts.

The drug-discovery revenue forecast rises to $75 million to $85 million from $65 million to $75 million. That business depends partly on individual milestones, while hosted software spreads revenue over time.

The December quarter will test the higher contract target. More consistent software billings would give Schrödinger a steadier base alongside the drug-discovery payments that helped this quarter.