Kailun Ying

Kailun Ying requested a definition of ACV and its difference from reported revenue, asking how the 2026 ACV guidance might translate to reported software revenue given the ongoing transition to hosted contracts. She also asked if reported revenue could potentially exceed ACV guidance in 2026 and for the key factors determining revenue landing at the lower or upper end of the guidance range.

Answer

Richie Jain, CFO, defined ACV as the annual value of a contract, fully reflected for one-year deals or annually for multi-year deals. He referred to a detailed visual explanation on slide 19 for revenue recognition differences between on-premise (upfront) and hosted (ratable) deals. He clarified that Schrödinger is not providing revenue guidance for 2026, only ACV guidance of $218 million-$228 million, and does not expect reported revenue to be greater than ACV in 2026 due to the accelerated transition to hosted contracts, which defers revenue recognition. Ramy Farid, CEO, added that mathematically, successful transition to hosted will result in lower reported revenue in 2026 compared to 2025. Mr. Jain provided a rule of thumb: each 1% increase in hosted revenue percentage results in a $2 million-$3 million reduction in current year revenue, emphasizing ACV and hosted revenue percentage as key performance metrics for the year.