Ramy Farid: Yes, so to be clear, I think what we expect to happen is new companies will come to us asking to use our technology as a foundation for their drug discovery efforts. And we are seeing those inquiries. Now, those companies are asking, okay, we’re going after this particular target or this drug class. And we’d like to build our company based on your technology, there’s all sorts of availability of funding in those companies. Some of them are well capitalized, some of them hope to be capitalized, some of them may be capitalized in the future. And we’re working with all of them, and we are seeing an uptick of interest there, but it’s too early to bake that into our revenue outlook. Now, the companies that previously discontinued, my expectation is that they will not come back, whether they are based in China or based in the U.S. Those companies have shifted their strategies, in some cases they’ve merged with other companies, in other cases they’ve been acquired themselves, or in other cases they’ve shut down drug discovery altogether and they’re just focusing on the prosecution of their clinical programs.
So we’re not assuming that they come back and become drug discovery software customers again.
Matthew Hewitt: Understood. Thank you.
Operator: We’ll move next to Joe Catanzaro with Piper Sandler. Your line is open.
Joseph Catanzaro: Hey, everybody. Thanks for taking my question. I had maybe a quick one on 3515. I think we’ve seen in this space that patient selection strategy could be really important, and Karen, I think you mentioned selecting patients with elevated replication stress. So I would be curious to hear your thoughts and if you could elaborate a bit on how are you thinking about going about detecting and defining elevated replication stress? Thanks.
Karen Akinsanya: Yes, great question. I mean, first of all, let’s just say that we know that Wee1 inhibitors have been shown to have great efficacy in particular tumor types already, so uterine serous carcinoma, ovarian cancer, really strong responses there. We do, though, believe that there are opportunities in solid tumors beyond those gynecological tumors. We mentioned breast cancer and other solid tumor types. As you know, we had a collaboration with MD Anderson for several years that sought to really help us understand sensitive tumor types, and we’re going to be leveraging that information as we go forward with our clinical trials. As you know, we’re in a dose escalation setup this year, but as we go to look for efficacy signals, we have the opportunity to leverage that information from the collaboration as well as to think about how to select patients that we think are going to be the most sensitive. So we’ll be providing updates on that in the future.
Joseph Catanzaro: Okay, thanks. That’s helpful. Thanks for taking my question.
Operator: [Operator Instructions] We’ll move next to Chris Shibutani with Goldman Sachs. Your line is open.
Chris Shibutani: Great. Thank you very much. A question about the business as well as a question about the pipeline. On the business, on an annual basis, you’ve tended to provide some insight into the annual contract value and the number of customers that you’re having there. Can you talk about how the year is progressing and your confidence in terms of that ACV trend moving one direction or another, presumably favorably given the 6% to 13% range that you’ve provided? And then within that, what tends to influence whether the gross margins are closer to sort of the mid-70s versus the 80% level? So if I had to explain to someone the mix of the customers and the gross margin impact and what you’re seeing, how could you help me there?
And then secondly, at the R&D day, Karen, at the end of last year, I think there was a little bit of buzz that emerged when you guys identified a couple of potential targets that the street tends to perk up about. In particular, I’ll mention NLRP3 this year has become somewhat trendy. PRMT5 also has a presence. So with those, you talk about advancing one into an IND in 2025. What’s the horse race like? And is that purely on the domain of something that you guys would plan to take forward? Or is that something you would contemplate possibly shifting over towards a partnership there as a way to perhaps leverage costs but still be able to get some of the carry, so to speak? Thank you.
Ramy Farid: Thanks, Chris. I’ll answer the last couple of questions. I’ll let Karen answer the other five or six. So beginning with the ACV, we highlighted that last year revenue growth exceeded ACV growth by a significant margin, and we disclosed ACV growth. And we don’t break out ACV trends quarterly, but we’ve definitely communicated that ACV growth will be significantly higher than revenue growth this year. And that was driven by the large contribution from the multi-year deals in the fourth quarter of last year, which effectively are recognizing revenue from future years, in that case, 24, 25, and 26 for a three-year deal. So ACV growth this year is likely to be significantly higher than revenue growth. And that was true in the first quarter.
We don’t sort of have an audited ACV growth number, but qualitatively it was significantly above the revenue growth. And it is consistent with what we’re expecting for the full year. Now in terms of the number of customer trends, we do use present that in our KPIs. I think we have confidence that the KPIs are going to trend positively this year. We don’t guide to that. I don’t have specific numbers to share, but you could look at the numbers that we highlighted last year and we remain pretty positive about the trajectory of those numbers this year and about their ability to contribute to us achieving the revenue guidance and by implication the ACV growth outlook that we’re expecting. And then, sorry, I met the other question. I knew it would take me a while to get there, gross margin.
So gross margin is somewhat influenced by the contribution of multi-year deals. If we have a large software renewal that includes revenue that we’re providing the actual access to software two or three years out, then that revenue being recognized as a very high gross margin. And that tends to lift the gross margin overall. Whereas a quarter, for example, like the one we most recently have, where we didn’t have a lot of multi-year deals and we had a significant step up in hosted revenue, that tends to bring the gross margin down. Now we are very confident that the gross margin is going to trend positively over time. There was a little bit of an increase in technology spend that I flagged up in the first quarter. But I think that overall, we’re very convinced that gross margin trend, the guidance will be similar to last year.
And we think that it will trend positively over time. I wouldn’t be dialing in substantial increase in gross margin, but we do think there’s reason to think that it will continue to gradually take up by small amounts each year. Sorry, Karen.
