Q2 2026 Schrödinger Inc Earnings Call

August 5, 2026

Speaker #1: Thank you for standing by. Welcome to Schrodinger's conference call to review Q2 2026 financial results. My name is Rob, and I will be your operator for today's call.

Operator: Thank you for standing by. Welcome to Schrödinger's conference call to review Q2 2026 financial results. My name is Rob, and I will be your operator for today's call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then 1 on your telephone keypad. Please be advised that this call is being recorded at the company's request. Now, I would like to introduce your host for today's conference, Ms. Jaren Madden, Chief Corporate Affairs Officer and Head of Investor Relations. Please go ahead.

Speaker #1: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star, then the number 1 on your telephone keypad.

Speaker #1: Please be advised that this call is being recorded at the company's request. Now, I would like to introduce your host for today's conference, Ms. Jaren Madden, Chief Corporate Affairs Officer and Head of Investor Relations.

Speaker #1: Please go ahead.

Speaker #2: Thank you, and good afternoon, everyone. Welcome to today's call, during which we will provide an update on the company and review our Q2 2026 financial results.

Jaren Madden: Thank you. Good afternoon, everyone. Welcome to today's call, during which we will provide an update on the company and review our Q2 2026 financial results. Earlier today, we issued a press release summarizing our financial results and progress across the company, which is available on our website at schrodinger.com. During today's call, management will make statements that are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements related to our outlook for the full year 2026 and Q3 2026, our plans to accelerate the growth of our software business and advance our therapeutics portfolio, the capabilities and potential advantages of Bunsen, our agentic AI co-scientist, the clinical potential and properties of our and our collaborators' compounds, the use of our cash resources, as well as our future expenses.

Speaker #2: Earlier today, we issued a press release summarizing our financial results and progress across the company, which is available on our website at schrodinger.com. During today's call, management will make statements that are forward-looking and made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements related to our outlook for the full year 2026 and Q3 2026, our plans to accelerate the growth of our software business and advance our therapeutics portfolio, the capabilities and potential advantages of Bunzen, our agentic AI co-scientist, the clinical potential and properties of our and our collaborators' compounds, the use of our cash resources, as well as our future expenses.

Speaker #2: These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies, and prospects, which are based on the information currently available to us and on assumptions we have made.

Jaren Madden: These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Actual results may differ materially due to a number of important factors, including the considerations described in the Risk Factors section and elsewhere in the filings we make with the SEC, including our Form 10-Q for the quarter ended 30 June 2026. These forward-looking statements represent our views only as of today. We caution you that, except as required by law, we may not update them in the future, whether as a result of new information, future events, or otherwise. Also included in today's call are certain non-GAAP financial measures.

Speaker #2: Actual results may differ materially due to a number of important factors, including the considerations described in the risk factors section and elsewhere in the filings we make with the SEC, including our Form 10-Q for the quarter ended June 30, 2026.

Speaker #2: These forward-looking statements represent our views only as of today, and we caution you that, except as required by law, we may not update them in the future, whether as a result of new information, future events, or otherwise.

Speaker #2: Also included in today's call are certain non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles, and should be considered only in addition to and not a substitute for or superior to GAAP measures.

Jaren Madden: These non-GAAP financial measures are not prepared in accordance with GAAP and should be considered only in addition to, and not a substitute for or superior to, GAAP measures. Please refer to the tables at the end of our press release, which is available on our website, for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures. This afternoon, Ramy Farid, our CEO, will review our recent progress. Richie Jain, Chief Financial Officer, will discuss our financial results and 2026 guidance. Karen Akinsanya, President, Head of Therapeutics R&D and Chief Strategy Officer, Partnerships, will provide an update on our therapeutics portfolio. Pat Lorton, our Chief Technology and Chief Operating Officer, will join us for the Q&A. With that, I will turn the call over to Ramy.

Speaker #2: Please refer to the tables at the end of our press release, which is available on our website for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures.

Speaker #2: This afternoon, Ramy Farid, our CEO, will review our recent progress. Then Richie Jain, Chief Financial Officer, will discuss our financial results and 2026 guidance.

Speaker #2: Karen Akinsanya, President, Head of Therapeutics R&D, and Chief Strategy Officer, partnerships, will provide an update on our therapeutics portfolio. Pat Laughton, our Chief Technology and Chief Operating Officer, will join us for the Q&A.

Speaker #2: Ramy.

Speaker #3: Thanks, Jaren, and thank you, everyone, for joining us today. We are very pleased with our momentum across the business in the Q2. The biopharma industry is increasingly recognizing that a computationally driven, predict-first approach is a critical driver for accelerating drug discovery timelines and improving probabilities of success.

Ramy Farid: Thanks, Jaren, and thank you, everyone, for joining us today. We are very pleased with our momentum across the business in Q2. The biopharma industry is increasingly recognizing that a computationally driven predict-first approach is a critical driver for accelerating drug discovery timelines and improving probabilities of success. Our ACV growth of 27%, driven by broad-based demand, reflects this ongoing shift. In the quarter, we saw a continued scale-up within large customers, uptake of new products, an improved biotech sector, and new customers across life sciences and materials science. A key driver of our growth strategy is introducing new products that expand platform usage and provide access to new budgets. We are excited about Bunsen, our AI co-scientist, which we officially launched in early access last week. We have optimized Bunsen to execute our validated computational methods and leverage our decades of molecular discovery expertise.

Speaker #3: Our ACV growth of 27%, driven by broad-based demand, reflects this ongoing shift. In the quarter, we saw a continued scale-up within large customers, uptake of new products, an improved biotech sector, and new customers across life sciences and material science.

Speaker #3: A key driver of our growth strategy is introducing new products that expand platform usage and provide access to new budgets. We are excited about Bunzen, our AI co-scientist, which we officially launched in early access last week.

Speaker #3: We have optimized Bunzen to execute our validated computational methods and leverage our discovery expertise. By executing complex, multi-step workflows, Bunzen helps expert computational chemists work more efficiently and run more design projects.

Ramy Farid: By executing complex multi-step workflows, Bunsen helps expert computational chemists work more efficiently and run more design projects. Bunsen will also enable, more broadly, drug hunters to access our software and run advanced simulations, expanding our user base over time. Our longstanding collaborators, NVIDIA and Google Cloud, are providing additional tools and compute resources to support early access to Bunsen. Our throughput-based licensing model ensures we are positioned to capture the value of the significantly increased platform usage we expect Bunsen to drive. We are also very pleased that Bristol Myers Squibb, a longtime customer and collaborator, is deploying Bunsen and expanding their use of the platform across their research organization. Our new strategic software agreement with BMS, announced earlier today, allows us to deploy Bunsen in conjunction with our computational technologies designed to enable large-scale chemical exploration.

Speaker #3: Bunzen will also enable more broadly drug hunters to access our software and run advanced simulations expanding our user base over time. Our long-standing collaborators NVIDIA and Google Cloud are providing additional tools and compute resources to support early access to Bunzen.

Speaker #3: Our throughput-based licensing model ensures we are positioned to capture the value of the significantly increased platform usage we expect Bunzen to drive. We are also very pleased that Bristol-Myers Squibb, a longtime customer and collaborator, is deploying Bunzen and expanding their use of the platform across their research organization.

Speaker #3: Our new strategic software agreement with BMS, announced earlier today, allows us to deploy Bunzen in conjunction with our computational technologies designed to enable large-scale chemical exploration.

Speaker #3: We view BMS's implementation as a compelling model for how large-scale deployment can expand platform usage and integration across the industry. Our commitment to scientific innovation is a key component of our strategy to expand our addressable market and access new budgets.

Ramy Farid: We view BMS's implementation as a compelling model for how large-scale deployment can expand platform usage and integration across the industry. Our commitment to scientific innovation is a key component of our strategy to expand our addressable market and access new budgets. Our Predictive Toxicology solution is a clear example of this approach. Our advanced physics-based technologies predict off-target binding risks before synthesis, enabling customers to address safety liabilities early in discovery programs and deliver optimized candidates with substantial time and cost savings. Commercial evaluations are going well, and Predictive Tox has already contributed to our 2026 ACV. As the promise of AI dominates the dialogue in both drug discovery and materials design, I'd like to take a moment to discuss what differentiates Schrödinger's platform. For molecular discovery, AI is a powerful tool enabled by the data used to train it. The more high-quality data, the more predictive the models.

Speaker #3: Our predictive toxicology solution is a clear example of this approach. Our advanced physics-based technologies predict off-target binding risks before synthesis. Enabling customers to address safety liabilities early in discovery programs and deliver optimized candidates with substantial time and cost savings.

Speaker #3: Commercial evaluations are going well, and predictive tox has already contributed to our 2026 ACV. As the promise of AI dominates the dialogue in both drug discovery and materials design, I'd like to take a moment to discuss what differentiates Schrodinger's platform.

Speaker #3: For molecular discovery, AI is a powerful tool enabled by the data used to train it. The more high-quality data, the more predictive the models.

Speaker #3: By using rigorous first-principles physics, we generate the accurate, reliable data required for AI models. This integration of the most advanced, ground-truth physics calculations and cutting-edge AI is the foundation of our computational molecular discovery platform.

Ramy Farid: By using rigorous first principles physics, we generate the accurate, reliable data required for AI models. This integration of the most advanced ground-truth physics calculations and cutting-edge AI is the foundation of our computational molecular discovery platform. By continually expanding our platform capabilities and introducing new products, we are unlocking new budgets and broadening our user base across the biopharma and material science industries. None of this progress would be possible without our team, and I want to thank our employees for their dedication and hard work in advancing our mission. We are executing well against our strategy, expanding our software footprint, and continuing to build long-term value across our therapeutics portfolio. I'll now turn the call over to Richie to review our financial results.

Speaker #3: By continually expanding our platform capabilities, and introducing new products, we are unlocking new budgets and broadening our user base across the biopharma and materials science industries.

Speaker #3: None of this progress would be possible without our team. And I want to thank our employees for their dedication and hard work in advancing our mission.

Speaker #3: We are executing well against our strategy, expanding our software footprint, and continuing to build long-term value across our therapeutics portfolio. I'll now turn the call over to Richie to review our financial results.

Speaker #4: Thank you, Ramy, and good afternoon. In the Q2, we saw strong execution across both our software and drug discovery businesses. Characterized by robust ACV growth, a rapid acceleration in hosted revenue percentage, continued portfolio progress, disciplined expense management, and a strong balance sheet.

Richie Jain: Thank you, Ramy, and good afternoon. In the Q2, we saw strong execution across both our software and drug discovery businesses, characterized by robust ACV growth, a rapid acceleration in hosted revenue percentage, continued portfolio progress, disciplined expense management, and a strong balance sheet. Q2 ACV was $29.6 million, which represents 27% growth year over year. ACV excluding contribution was $22.6 million, a 23% increase compared to Q2 2025, and at the upper end of our expectations. On a trailing four-quarter basis, ACV reached $208 million, and H1 2026 ACV of $58.0 million represents 19% growth compared to the H1 of last year. ACV growth was broad-based, driven by our top 20 pharma customers as well as from biotech and material science customers.

Speaker #4: Q2 ACV was 29.6 million, which represents 27% growth year over year. ACV, excluding contribution, was 22.6 million, a 23% increase compared to Q2 2025, and at the upper end of our expectations.

Speaker #4: On a trailing Q4 basis, ACV reached 208 million, and Q1 2026 ACV of 58.0 million represents 19% growth compared to Q1 of last year.

Speaker #4: ACV growth was broad-based, driven by our top 20 pharma customers, as well as from biotech and materials science customers. Contribution ACV was 7 million in Q2.

Richie Jain: Contribution ACV was $7 million in the Q2, $5 million as a result of the Gates Foundation extending its funding for our Predictive Toxicology initiative based on the progress we've made, and $2 million from Gates Ventures in support of our continued work in battery research to develop and apply atomistic simulation methods to improve battery performance. Total revenue for the Q2 of 2026 was $58.9 million. Software revenue was $32.5 million, of which hosted revenue contributed $15.2 million or 47% of the software total, compared to 31% in the Q2 of 2025. On a trailing four-quarter basis, hosted revenue increased to 30% of the software total from 23% in Q2 2025 and 27% last quarter. Overall, we are pleased with the progress we are making with transitioning customers to hosted licensing.

Speaker #4: 5 million as a result of the Gates Foundation extending its funding for our predictive toxicology initiative, based on the progress we've made, and 2 million from Gates Ventures in support of our continued work in battery research to develop and apply atomistic simulation methods to improve battery performance.

Speaker #4: Total revenue for Q2 2026 was 58.9 million. Software revenue was 32.5 million, of which hosted revenue contributed 15.2 million, or 47% of the software total, compared to 31% in Q2 2025.

Speaker #4: On a trailing Q4 basis, hosted revenue increased to 30% of the software total, from 23% in Q2 2025 and 27% last quarter. Overall, we are pleased with the progress we are making with transitioning customers to hosted licensing.

Speaker #4: Our year-over-year revenue growth continues to be impacted by our planned accelerated transition to hosted licenses, for which revenue is recognized ratably over the life of the contract, rather than mostly upfront.

Richie Jain: Our year-over-year revenue growth continues to be impacted by our planned accelerated transition to hosted licenses, for which revenue is recognized ratably over the life of the contract rather than mostly upfront. We are pleased with the conversion dynamics we are seeing so far, and our priority remains converting customers as their contracts come up for renewal. As a reminder, increasing the percentage of revenue from hosted contracts will have a temporary negative impact on revenue, with every 1% increase in hosted revenue resulting in a $2 to 3 million reduction in reported revenue, depending on renewal quarter and contract length. Software growth margin was 71% for the quarter compared to 76% in Q2 2025, reflecting our planned accelerated transition to hosted software licensing. Contribution revenue was $3.4 million for the period compared to $4.8 million in Q2 2025.

Speaker #4: We are pleased with the conversion dynamics we are seeing so far, and our priority remains converting customers as their contracts come up for renewal.

Speaker #4: As a reminder, increasing the percentage of revenue from hosted contracts will have a temporary negative impact on revenue, with every 1% increase in hosted revenue resulting in a 2 to 3 million reduction in reported revenue, depending on renewal quarter and contract length.

Speaker #4: Software growth margin was 71% for the quarter, compared to 76% in Q2 2025, reflecting our planned accelerated transition to hosted software licensing. Contribution revenue was 3.4 million for the period, compared to 4.8 million in Q2 2025.

Speaker #4: The decline is driven by completion of the initial funding by the Gates Foundation in support of our predictive toxicology initiative, partially offset by the Gates Ventures grant supporting our battery research.

Richie Jain: The decline is driven by the completion of the initial funding by the Gates Foundation in support of our Predictive Toxicology initiative, partially offset by the Gates Ventures grant supporting our battery research. Drug discovery revenue was $23 million, compared to $13.9 million in Q2 2025. The increase is primarily due to the receipt of a $10 million collaboration milestone from Ajax Therapeutics. Total operating expenses for Q2 were $74 million, a decrease of 6% compared to $79 million in Q2 2025. The decrease was primarily driven by lower headcount, CRO, and professional services fees, and reflects our commitment to disciplined expense management. Total other income was $48.9 million, primarily due to a gain associated with the completion of Eli Lilly's acquisition of Ajax. Net income for the quarter was $6 million compared to a net loss of $43 million in the Q2 of 2025.

Speaker #4: Drug discovery revenue was 23 million, compared to 13.9 million in Q2 2025. The increase is primarily due to the receipt of a $10 million collaboration milestone from Ajax Therapeutics.

Speaker #4: Total operating expenses for Q2 were $74 million, a decrease of 6% compared to $79 million, in Q2 2025. The decrease was primarily driven by lower headcount, CRO, and professional services fees, and reflects our commitment to disciplined expense management.

Speaker #4: Total other income was $48.9 million, primarily due to a gain associated with the completion of Eli Lilly's acquisition of Ajax. Net income for the quarter was $6 million, compared to a net loss of $43 million, in Q2 2025.

Speaker #4: We ended the quarter with a strong balance sheet of $419 million in cash and marketable securities. The fully diluted share count was 75.8 million.

Richie Jain: We ended the quarter with a strong balance sheet of $419 million in cash and marketable securities. The fully diluted share count was 75.8 million. Turning to our full year 2026 guidance, we continue to expect ACV to be in the range of $218 to 228 million, representing 10% to 15% growth over 2025. As a reminder, Q4 is our largest quarter and typically greater than 50% of annual ACV. We remain pleased with how opportunities we expect to close this year are progressing. We now expect drug discovery revenue to be in the range of $65 to 75 million, compared to our prior expectation of $55 to 65 million, due to the recognition of a $10 million collaboration milestone payment from Ajax. Our operating expenses are expected to be less than in 2025.

Speaker #4: Turning to our full year 2026 guidance, we continue to expect ACV to be in the range of 218 to 228 million, representing 10 to 15 percent growth over 2025.

Speaker #4: As a reminder, Q4 is our largest quarter and typically greater than 50% of annual ACV. We remain pleased with how opportunities we expect to close this year are progressing.

Speaker #4: We now expect drug discovery revenue to be in the range of $65 to $75 million, compared to our prior expectation of $55 to $65 million, due to the recognition of a $10 million collaboration milestone payment from Ajax.

Speaker #4: Our operating expenses are expected to be less than. In 2025. Finally, for the Q3 of 2026, we expect ACV excluding contribution to be 41 to 45 million, compared to 38.3 million in Q3 2025, which included 2.2 million of contribution ACV.

Richie Jain: Finally, for Q3 2026, we expect ACV, excluding contribution, to be $41 to 45 million, compared to $38.3 million in Q3 2025, which included $2.2 million of contribution ACV. To wrap up, our performance in Q2 reflects continued momentum across our business, backed by a strong balance sheet. Given the combination of robust ACV growth, disciplined expense management, and accelerating hosted software adoption, we remain very well positioned to execute on our strategic priorities. I would now like to hand the call over to Karen.

Speaker #4: To wrap up, our performance in the Q2 reflects continued momentum across our business. Backed by a strong balance sheet. Given the combination of robust ACV growth, disciplined expense management, and accelerating hosted software adoption, we remain very well-positioned to execute on our strategic priorities.

Speaker #4: I would now like to hand the call over to Karen.

Speaker #1: Thank you, Richie. The therapeutics team is experiencing a boost in productivity across our portfolio, following the integration of our new agentic AI co-scientist, Bunsen.

Karen Akinsanya: Thank you, Richie. The therapeutics team is experiencing a boost in productivity across our portfolio following the integration of our new agentic AI co-scientist, Bunsen. While Bunsen has clearly accelerated the day-to-day productivity of our computational chemists, its impact extends to the rest of our cross-functional drug hunting team. Bunsen is enabling target analysis and structural biology workflows as our structure-based programs begin, as well as the integrated analysis of DMPK, pharmacology, and toxicology data during the mature stages of programs. These capabilities are helping our scientists drive rapid, data-driven decisions and to accelerate the predict, design, make, test, and analyze cycle. Our new global collaboration with SymSera Pharmaceutical Group, announced in July, combines our complementary predict-first design approach with SymSera's preclinical and clinical execution. This collaboration allows us to rapidly translate discovery breakthroughs into clinical stage opportunities consistent with our evolving strategy for our therapeutics portfolio.

Speaker #1: While Bunsen has clearly accelerated the day-to-day productivity of our computational chemists, its impact extends to the rest of our cross-functional drug-hunting team. Bunsen is enabling target analysis and structural biology workflows as our structure-based programs begin, as well as the integrated analysis of DMPK, pharmacology, and toxicology data during the mature stages of programs.

Speaker #1: These capabilities are helping our scientists drive rapid, data-driven decisions and accelerate the predict, design, make, test, and analyze cycle. Our new global collaboration with Sincere Pharmaceutical Group, announced in July, combines our complementary predict-first design approach with Sincere's pre-clinical and clinical execution.

Speaker #1: This collaboration allows us to rapidly translate discovery breakthroughs into clinical-stage opportunities, consistent with our evolving strategy for our therapeutics portfolio. We are eligible for development and commercial milestone payments, as well as tiered royalties on net sales.

Karen Akinsanya: We are eligible for development and commercial milestone payments, as well as tiered royalties on net sales. The growing track record for therapeutics designed using our platform provides the ultimate validation of its impact. Since 2020, we have realized over $750 million from our therapeutics activities across collaborations, co-invented drugs, and co-founded companies including Nimbus, Morphic, Structure, and most recently, Lilly's $2.3 billion acquisition of Ajax. In June, data presented at the European Hematology Association for AJ1-11095, the phase I type 2 JAK inhibitor, which was the most advanced asset in the Ajax portfolio, provided initial clinical evidence that the characteristics of this selective molecule align with the desired differentiated target product profile. With multiple programs eligible for future milestones and royalties, our pipeline continues to represent the potential for substantial long-term value.

Speaker #1: The growing track record for therapeutics designed using our platform provides the ultimate validation of its impact. Since 2020, we have realized over 750 million.

Speaker #1: From our therapeutics activities across collaborations, co-invented drugs, and co-founded companies including Nimbus, Morphic, Structure, and most recently Lilly's 2.3 billion acquisition of Ajax. In June, data presented at the European Hematology Association for AJ1 11095, the Phase I Type II JAK inhibitor, which was the most advanced asset, in the Ajax portfolio, provided initial clinical evidence that the characteristics of this selective molecule align with the desired differentiated target product profile.

Speaker #1: With multiple programs eligible for future milestones and royalties, our pipeline continues to represent the potential for substantial long-term value. We look forward to keeping you updated on our progress, and thank our team, and partners, for the advances across the combined portfolio of important innovations for patients.

Karen Akinsanya: We look forward to keeping you updated on our progress and thank our team and partners for the advances across the combined portfolio of important innovations for patients. I will now turn the call back to Ramy.

Speaker #1: I'll now turn the call back to Ramy.

Speaker #2: Thank you, Karen. As you've heard today, the first half of 2026 has been marked by innovation and strong execution. From robust ACV growth to the launch of our AI co-scientist, Bunsen, to the continued advancement of co-invented development candidates now in the clinic, we are fundamentally transforming how drugs and materials are discovered.

Ramy Farid: Thank you, Karen. As you have heard today, the H1 of 2026 has been marked by innovation and strong execution. From robust ACV growth to the launch of our AI co-scientist, Bunsen, to the continued advancement of co-invented development candidates now in the clinic, we are fundamentally transforming how drugs and materials are discovered. At this time, we are happy to take your questions.

Speaker #2: At this time, we are happy to take your questions.

Speaker #3: Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press star 1 in your telephone keypad.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, again, press star one. Your first question today comes from the line of Michael Ryskin from Bank of America. Your line is open.

Speaker #3: If you would like to withdraw your question, again, press star 1. Your first question today comes from the line of Michael Riskin from Bank of America.

Speaker #3: Your line is open.

Alexa Chan: Hi, this is Alexa Chan on for Mike. Thank you so much for taking the questions. I just have a couple here. Maybe to start, can you give a bit more color on end market health in biopharma and biotech as well as customer activity overall? Kind of sounds like funding's moving in the right direction. Then for my follow-up, can you talk about how much maybe PredictiveTox has contributed to ACV so far, and what are the expectations for that going forward?

Speaker #5: Hi, this is Alexa Chan on for Mike. Thank you so much for taking the questions. I just have a couple here. Maybe to start, can you give a bit more color on end-market health in biopharma and biotech, as well as customer activity overall?

Speaker #5: It kind of sounds like funding is moving in the right direction. And then for my follow-up, can you talk about how much maybe predictive talk has contributed to ACV so far, and where the expectations for that going forward?

Speaker #4: Sure. I'll take the first question you were asking. I think about the health of the biotech sector.

Ramy Farid: Sure. I'll take the first question you were asking, I think about the health of the biotech sector.

Speaker #5: Yeah.

Alexa Chan: Yes.

Speaker #4: We've noticed what a yep. We've noticed what I think a lot of other people have noticed, that certainly things are better this year than they were last year.

Ramy Farid: We've noticed what I think a lot of other people have noticed, that certainly things are better this year than they were last year. I think good reflection of that is the number of IPOs that we've seen this year compared to last year. I think we're already at two times where we were last year. We're also noticing a trend, a better situation with regard to customers just in the biotech sector, where last year, we saw what I think a lot of people were seeing is the number of biotech companies struggling to raise funds and that impacted our business as it did a lot of companies that were selling technology to biotech companies. We're just not seeing that this year at anywhere near the same rate as we were seeing last year.

Speaker #4: I think a good reflection of that is the number of IPOs that we've seen this year, compared to last year. I think we're already at two times where we were last year.

Speaker #4: And we're also noticing a trend a better situation with regard to customers just in the biotech sector, where last year we saw what I think a lot of people were seeing is a number of biotech companies struggling to raise funds and that impacted our business as it did a lot of companies that were selling technology to biotech companies.

Speaker #4: And we're just not seeing that this year, anywhere near the same rate as we were seeing last year. So these are all encouraging signs that I think are consistent with what a lot of other people are reporting.

Ramy Farid: These are all encouraging signs that I think are consistent with what a lot of other people are reporting. With regard to PredictiveTox, we're not disclosing, of course, we haven't broken down the ACV from individual products, but it has contributed, as we said, to ACV this year, and it's part of our guidance that we provided for the full year. Rich, anything else to add to that?

Speaker #4: With regard to predictive talks, we're not disclosing, of course. We have broken down the ACV from individual products, but it has contributed, as we said, to ACV this year.

Speaker #4: And it's part of it's part of our guidance that we provided for the full year. Richie, anything else to add to that? No? Great.

Pat Lorton: Nope.

Ramy Farid: Great.

Speaker #5: Thank you so much.

Alexa Chan: Thank you so much.

Speaker #4: Thank you.

Ramy Farid: Thank you.

Speaker #3: Your next question comes from the line of Matt Hewitt from Craig Hallam Capital Group. Your line is open.

Operator: Your next question comes from the line of Matt Hewitt from Craig-Hallum Capital Group. Your line is open.

Speaker #6: Good afternoon. Thanks for taking the questions. Maybe first up on Bunsen—obviously, congratulations on getting that first collaboration or contract signed. I'm just curious what the pipeline looks like, and if you could provide any details on maybe what the pricing model for that looks like.

Matt Hewitt: Good afternoon. Thanks for taking the questions. Maybe first up on Bunsen. Obviously, congratulations on getting that first collaboration or contract signed. I'm just curious what the pipeline looks like, and if you could provide any details on maybe what the pricing model for that looks like. Is it similar to the rest of the software, or is there some other angles with Bunsen?

Speaker #6: Is it similar to the rest of the software, or is there some other angles with Bunsen?

Ramy Farid: I'll start and maybe hand it over to Pat. Well, thank you, first of all. Yeah, we're excited, of course, about the agreement with BMS. They're one of our large customers, and as a result of the agreement of the collaboration, they significantly scaled up their access to our technology. I think that answers sort of the second part of your question is that's how we see Bunsen or how we think we'll recognize the value of Bunsen and translate all the excitement around the justification of these complex workflows, is through the increased demand of our technology. Again, that's sort of what was borne out in the collaboration with BMS. Pat, is there anything else to add to that or pretty much covered?

Speaker #4: I'll start and maybe hand it over to Pat. We have as we said, we're well, thank you first of all. Yeah, we're excited, of course, about the agreement with BMS.

Speaker #4: They're a large one of our large customers, and as a result of the agreement of the collaboration, they significantly scaled up their access to our technology.

Speaker #4: And I think that answers sort of the second part of your question, is that that's how we see Bunsen or how we think we'll recognize the value of Bunsen and translate all the excitement around justification of these complex workflows is through the increased demand of our technologies.

Speaker #4: And again, that's sort of what was borne out in the collaboration with BMS as anything else to add to that, or? Pretty much covered there.

Pat Lorton: No. I think it's covered.

Ramy Farid: Yeah. Great.

Speaker #4: Yeah. Great.

Speaker #6: And then maybe as a follow-up, obviously, some nice progress on converting customers to hosted and recognize that probably a big chunk of that's going to come in Q4 when contracts renew.

Matt Hewitt: Maybe as a follow-up, obviously some nice progress on converting customers to hosted, I recognize that probably a big chunk of that's going to come in Q4 when contracts renew. As you're having those discussions now, what is the feedback? Is your sense that you could get a lion's share of customers converted, say, within the first two years? Or is this going to maybe take a little bit longer than that? Thank you.

Speaker #6: But as you're having those discussions now, what is the feedback? Is your sense that you could get a line share of customers converted, say, within the first two years, or is this going to maybe take a little bit longer than that?

Speaker #6: Thank you.

Speaker #4: Yeah. Richie will cover that. Yeah. Thanks, Matt. So overall, we're still tracking towards the same goals of 75% hosted by the end of 2028.

Ramy Farid: Rich, you will cover that. Yep.

Richie Jain: Yep. Thanks, Matt. Overall, we're still tracking towards the same goals of 75% hosted by the end of 2028. So far, we've been pleased with how we're progressing. We were 47% hosted this quarter, so I'd say we're on track towards our goals. As a reminder, we did transition a few customers prior to their renewal dates, which did have an outsized impact on the hosted revenue percentage for this quarter. Overall, the customer engagement's been really strong, and we're progressing towards our three-year goals.

Speaker #4: So far, we've been pleased with how we're progressing. We were 47% hosted this quarter. So I'd say we're on track towards our goals. As a reminder, we did transition a few customers prior to their renewal date, which did have an outsized impact on the hosted revenue percentage for this quarter.

Speaker #4: But overall, the customer engagement's been really strong, and we're progressing towards our three-year goals.

Speaker #6: That's great. Thank you.

Matt Hewitt: That's great. Thank you.

Speaker #3: Your next question comes from the line of Scott Schoenhaus from KeyBank. Your line is open.

Operator: Your next question comes from the line of Scott Schoenhaus from KeyBank. Your line is open.

Scott Schoenhaus: Hey, team. Thanks for taking my question and congrats on the results.

Speaker #6: 18%. Thanks for taking my question, and congrats on the results. You mentioned that predictive talks is now being included in ACV, and I know that part of your growth strategy was to unlock more pharma budget by expanding product scope and capabilities.

Ramy Farid: Thanks.

Scott Schoenhaus: You mentioned that PredictiveTox is now being included in ACV, and I know part of your growth strategy was to unlock more pharma budgets by expanding product scope and capabilities. How much are we seeing in terms of ACV growth as a function of new product launches, and how should we think about areas for the next wave of product launches to unlock more of the budget? Thanks.

Speaker #6: How much are we seeing in terms of ACV growth as a function of new product launches? And how should we think about areas for the next wave of product launches to unlock more of the budget?

Speaker #6: Thanks.

Speaker #4: Yep. Yeah. No, that's correct. A major sort of contributor to growth so far in the first half of the year, and our expectations are the same for the second half of the year, is from new products.

Ramy Farid: Yep. Yeah. No, that's correct. A major sort of contributor to growth so far in H1, and our expectations are the same for H2, is from new products. As we said, PredictiveTox is now contributing to that growth. Other new products like RetroSynth are also contributing. In fact, we mentioned that in the BMS collaboration. That's a part of that agreement. It's a major part of our strategy. As you know, we have a very productive R&D group at Schrödinger that continues to make scientific breakthroughs that result in these sort of exciting new products that continue to solve the kinds of problems that our internal therapeutics group encounters and the projects we're working on. Also, the many thousands of users that we interact with. We accumulate all of that feedback.

Speaker #4: As we said, predictive talks is not contributing. To that growth, so is so are other new products like RetroSynth. In fact, that's we mentioned that in the BMS collaboration.

Speaker #4: That's a part of that agreement. So it's a major part of our strategy. As you know, we have a very productive R&D group at Schrodinger that continues to make scientific breakthroughs that result in these sort of exciting new products.

Speaker #4: That continue to solve the kinds of problems that our internal therapeutics group encounters and the projects we're working on. And also, the many thousands of users that we interact with.

Speaker #4: We accumulate all of that feedback. We learn about what sorts of technologies are required to have a bigger impact. And we invest in those technologies and develop new products.

Ramy Farid: We learn about what sorts of technologies are required to have a bigger impact, and we invest in those technologies and develop new products, and they continue to play an important role in contributing to the growth in addition to not just new products, but of course, existing customers scaling up their usage of those products is also a contributor. New products is certainly a big part of it.

Speaker #4: And they continue to play an important role in contributing to the growth, in addition to not just new products, but of course, customers, existing customers, scaling up their usage of those products is also a contributor.

Speaker #4: But new products are certainly a big part of it.

Speaker #6: Thanks. And as a follow-up, maybe this is for Richie. You noted you guys noted reduction in operating expenses. Maybe talk about the areas where you're able to gain efficiencies.

Scott Schoenhaus: Thanks. As a follow-up, maybe this is for Richie. You guys noted a reduction in operating expenses. Maybe talk about the areas where you're able to gain efficiencies. It sounds like you're applying Bunsen internally to drive some efficiencies on the drug discovery side, but maybe some other areas you could talk about on how you're controlling costs here.

Speaker #6: It sounds like you're applying Bunsen internally to drive some efficiencies on the drug discovery side. But maybe some other areas you could talk about on how you're controlling costs here.

Speaker #4: Yeah, and thanks for the, for the follow-up question. In addition to just enhanced productivity inside the company, operating expenses are down 6% year over year and also sequentially.

Richie Jain: Thanks for the follow-up question. In addition to just enhanced productivity inside the company, operating expenses are down 6% year-over-year and also sequentially. We've seen some reductions in personnel costs as well as CRO costs and professional services. This is a reflection of just the plans that we've put forward and the execution against that.

Speaker #4: We've seen some reductions in personnel costs as well as CRO costs and professional services. So this is a reflection of just the plans that we've put forward and the execution.

Speaker #4: That's it.

Speaker #6: Thanks, guys.

Scott Schoenhaus: Thanks, guys.

Speaker #4: Thank you.

Ramy Farid: Thank you.

Speaker #3: Again, if you'd like to ask a question, press star, then the number one on your telephone keypad. Your next question comes from a line of Evan Seegerman from BMO Capital Markets.

Operator: Again, if you'd like to ask a question, press star, then the number one on your telephone keypad. Your next question comes from the line of Evan Seigerman from BMO Capital Markets. Your line is open.

Speaker #3: Your line is open.

Speaker #5: Hi, there. This is Conor on for Evan. Thanks for taking our question. I have one for Karen. You noted in your prepared remarks today that your therapeutics team is already seeing productivity increases from the integration of Bunsen.

[Analyst] (BMO Capital Markets): Hi there, this is Conor on for Evan. Thanks for taking our question. I have one for Karen. You noted in your prepared remarks today that your therapeutics team is already seeing productivity increases from the integration of Bunsen. Being as Schrödinger is on the cutting edge of computer-aided drug design, I'm wondering if you can just speak to the specific areas of your workflows where you're seeing the greatest benefits from the technology, as we all try to wrap our minds around maybe what the ultimate benefits of AI and computer-aided drug discovery could be. Thank you.

Speaker #5: Being as Schrodinger is on the cutting edge of computer-aided drug design, I'm wondering if you can just speak to the specific areas of your workflows where you're seeing the greatest benefits from the technology as we all kind of try to wrap our minds around maybe what the ultimate benefits of sort of AI and computer-aided drug discovery could be.

Speaker #5: Thank you.

Speaker #1: Yeah. Happy to answer that. So as you know, we participate in structure-based drug design. And there's an explosion now of structures available because of a lot of what's going on broadly in the industry.

Karen Akinsanya: Yeah, happy to answer that. As you know, we participate in structure-based drug design, and there's an explosion now of structures available because of a lot of what's going on broadly in the industry. I think this is a great lift for Schrödinger. In particular, our teams are now not just using Bunsen to help us with running Schrödinger's platform, running the workflows, computational chemists, but analyzing structures, analyzing binding sites. A lot of the products that we use are not just about predicting the properties of molecules, but they're also about characterizing, refining, and accurately predicting protein structures, but also preparing those structures for use by our platform. I would say that that work has been accelerated. Those workflows have been accelerated by the use of Bunsen, which is now trained or expert in running our workflows.

Speaker #1: And I think this is a great lift for Schrödinger in particular. Our teams are now not just using Bunsen to help us with running Schrödinger's platform and running the workflows for computational chemists, but also analyzing structures and binding sites. A lot of the products that we use are not just about predicting the properties of molecules, but they're also about characterizing, refining, and accurately predicting protein structures. We're also preparing those structures for use by our platform.

Speaker #1: And I would say that that work has been accelerated. Those workflows have been accelerated by the use of Bunsen, which is now sort of trained or expert in running our workflows.

Speaker #1: So we're seeing that on the preparation of programs, the structure-based drug design. But we're also seeing it at every stage of the drug discovery process, which includes chemistry, but it also includes a lot of ancillary functions who interface with the platform.

Karen Akinsanya: We're seeing that on the preparation of programs for structure-based drug design. We're also seeing it at every stage of the drug discovery process, which includes chemistry, but it also includes a lot of ancillary functions who interface with the platform. Yeah, just pretty excited about what we're seeing, and I think this is going to be, as you heard today, adopted by our peers in the industry.

Speaker #1: So yeah, just pretty excited about what we're seeing. And I think this is going to be, as you heard today, adopted by our peers in the industry.

Ramy Farid: Maybe I can add, too.

Speaker #4: Okay. That I can add too. I think this concept of if I can just add, this concept of a co-scientist isn't just a sort of word that we throw around.

[Analyst] (BMO Capital Markets): Yeah. Thank you.

Ramy Farid: Look, if I can just add, this concept of a co-scientist isn't just a word that we throw around. In every sense of that word, Bunsen acts as a co-scientist in that it allows users to initiate a number of tasks and projects in parallel and doing a number of things at the same time, just like you can imagine a co-scientist. We like to think of every computational chemist, drug hunter in the group, all of a sudden has a team of people that are helping them perform some of the routine tasks that end up taking up a lot of human time. Those routine tasks being performed by Bunsen is also, in addition to what Karen said, is contributing to this efficiency and productivity.

Speaker #4: In every sense of that word, a Bunsen acts as a co-scientist in that it allows users to initiate a number of tasks and projects in parallel.

Speaker #4: And doing a number of things at the same time. Just like you could imagine a co-scientist. So we like to think of sort of every computational chemist, drug hunter in the group, all of a sudden has a team of people that are helping them perform some of the routine tasks that end up taking up a lot of human time.

Speaker #4: And so there's a routine task being performed by Bunsen. It's also in addition to what Karen said, is contributing to this efficiency and productivity.

Speaker #5: Yeah. I'd also add one thing that's really important is that as everyone knows, AI doesn't sleep. But a lot of our users do. And one common problem in this space, both nights and weekends, you'll set up a bolus of work and you'll kick it off using your very expensive supercomputer.

Pat Lorton: Yeah. I'd also add one thing that's really important is that, as everyone knows, AI doesn't sleep, but a lot of our users do. One common problem in this space, both nights and weekends, you'll set up a bolus of work and you'll kick it off using your very expensive supercomputer, and one hour in, something goes wrong and it dies. Now you've lost that night's work or that weekend's work unless you're actively monitoring it. If you're working with Bunsen, it will see that the job has died, it will try to figure out the problem, and it will be able to restart it. The throughput of work you're able to accomplish just from that optimization, ignoring all the other benefits of working with a co-scientist, is really incredible.

Speaker #5: And one hour in, something goes wrong and it dies. And now you've lost that night's work or that weekend's work unless you're actively monitoring it.

Speaker #5: But if you're working with Bunsen, it will see that the job has died. It will try to figure out the problem and it will be able to restart it.

Speaker #5: And the throughput of work you're able to accomplish just from that optimization, ignoring all the other benefits of working with the co-scientist, is really incredible.

Speaker #6: Yeah. Exciting time. Thank you.

[Analyst] (BMO Capital Markets): Yeah. Exciting time. Thank you.

Speaker #4: Thank you.

Ramy Farid: Thank you.

Speaker #3: Your next question comes from a line of Brendan Smith from TD Cowan. Your line is open.

Operator: Your next question comes from the line of Brendan Smith from TD Cowen. Your line is open.

Speaker #6: Great, thanks for taking the questions, guys. Maybe just one more follow-up on predictive products—I appreciate all the color there so far. I think I wanted to ask maybe how we should think about the 10% to 15% medium-term growth expectations you've noted previously.

Brendan Smith: Great. Thanks for taking the questions, guys. Maybe just one more follow-up on Predictive Toxicology. I appreciate all the color there so far. I think I wanted to ask maybe how we should think about the 10% to 15% medium-term growth expectations you've noted previously. I guess, does that factor in some assumptions about Predictive Tox's and maybe similarly, based on your broader market and feedback in the launch so far, how are you thinking of Predictive Toxicology relative to the core software business, just as some of this starts to really get its legs over the next couple quarters? Thanks.

Speaker #6: I guess, does that kind of factor in some assumptions about predictive toxicity and maybe similarly, I guess, based on your broader market and feedback in the launch so far, how are you kind of thinking predictive tox relative to the kind of the core software business, just as some of this starts to get really get its legs over the next couple of quarters?

Speaker #6: Thanks.

Speaker #4: Sure. Yeah, you broke up a little bit, but I think we got the gist of your question. I think you're just asking for a little bit more color about how predictive tox may be more specifically is contributing to growth.

Ramy Farid: Sure. Yeah, you broke up a little bit, but I think we got the gist of your question. I think you're just asking for a little bit more color about how Predictive Tox, maybe more specifically, is contributing to growth. As we said, we're not breaking down the component of growth that's tied to Predictive Tox. All we can say is that the evaluations are going very well. There's real demand for this kind of technology. A major source of failure of so many drug discovery projects is issues with safety, and safety is often tied to selectivity and binding to off-targets, and that's what Predictive Tox aims to do. We're pleased with the discussion so far. We're happy about how the evaluations are going. We're happy that it's already started to contribute.

Speaker #4: As we said, we're not breaking down the component of growth that's tied to predictive tox. But all we can say is that the evaluations are going very well.

Speaker #4: There's real demand for this kind of technology. A major source of failure are so many drug discovery projects is issues with safety. And safety is often tied to selectivity, and binding to off-targets.

Speaker #4: And that's what predictive tox aims to do. So we're pleased with the discussion so far. We're happy about how the evaluations are going. We're happy that it's already started to contribute but as with technology like this, we're very used to introducing new technologies that are sort of transformative there's a long lead time.

Ramy Farid: As with technology like this, we're very used to introducing new technologies that are transformative. There's a long lead time. It takes time to introduce the technology for customers to evaluate the technology, get their own results, which involves, by the way, running calculations, but also then validating those with experiment, and that obviously takes time. We expect for Predictive Tox to continue to contribute to growth for quite a number of years.

Speaker #4: It takes time to introduce the technology. For customers to evaluate the technology, get their own results, which involves, by the way, running calculations. But also then validating those with experiment.

Speaker #4: And that obviously takes time. So we expect to continue for predictive tox to continue to contribute to growth for quite a number of years.

Speaker #6: Got it. Thanks, guys. I appreciate it.

Brendan Smith: Got it. Thanks, guys. Appreciate it.

Speaker #4: Great. Thanks.

Ramy Farid: Great. Thanks.

Operator: I am showing no further questions at this time. That concludes today's call. You may now disconnect.

Q2 2026 Schrödinger Inc Earnings Call

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