Operator: Thank you. Our next question comes from Vince German at Markets .
Unidentified Analyst: Rating all the progress on the quarter. So with some meaningful payoffs from some of your partnerships, success with Morphis success with some of your partners, I guess, how are you thinking about capital allocation now that you’ve had some more revenues coming in. Are you more focused on acquiring assets that you can maybe utilize your platform for, clearly, investing in R&D and your own capabilities? Just how do you think about that going forward?
Geoff Porges: Thanks for the question, Evan. I think we’ve signaled in my prepared remarks and in other comments that we’re continuing to invest substantial capital into our platform. And — my sense from being here for about 9 months now is that we’re in a very dynamic environment with lots of opportunities to continue to prosecute this platform. But we’re also very excited about the proprietary portfolio, in particular, that Karen outlined and the opportunities that we have there. So our first priority way above all others is to continue to invest in our platform and our own portfolio. And as you point out, very well capitalized to do that. Now we are looking at additional opportunities. You can hear from Karen’s comments about enabling more targets for our platform.
We think that’s a very sensible adjacency. And we’re looking actively at putting capital there. And you’ve seen us already do that. I’m not telegraphing anything specific, but that’s a logical extension of the value creation from our platform. Beyond that, we’re a well-capitalized company and an industry that’s going through a fair amount of disruption right now. So we’re always engaged in conversations, but it sort of — I don’t think that we’re most excited about what we’re doing ourselves on our own account. We think that we have a highly differentiated platform.
Ramy Farid: Yes, exactly. And I’ll just add, we see ourselves, and I think the industry sees us as the gold standard and really the leader in this space. And we very much intend to keep it that way by continuing to invest in the underlying science and continue to make the kinds of breakthroughs that are having such a huge impact on discovery projects.
Unidentified Analyst: Excellent. Thank you for that. I appreciate it.
Geoff Porges: Yes. Thanks.
Operator: Thank you. The next question comes from Chris Shibutani of Goldman Sachs.
Chris Shibutani: Two questions. Jeff, since you’ve joined now for 9 months and had the chance to sort of look under the hood at the books and thinking about how contracts were structured and whatnot. I think historically, what investors have struggled with is trying to get an understanding of visibility about how that — how you have visibility and the guidance gets shaped and from the Q&A discussion from this earnings report, that seems to also be the case. Is there something that you’re observing? I see that you’re doing a 4 quarters of rolling cumulative revenues for the company. But anything about the approach, the way your contract restructure that we see as a potential way for you to strengthen your visibility and in turn, improve ours.
And then a second question, much congratulations on all the clinical development success of the collaborators, Morphic and IMV, certainly a tremendous outcome there. Is there some way that you can translate that in any quantifiable form clearly has a halo effect, but is there anything that somehow can quantifiably generate greater conviction in your potential customers because C1 do one, but then is there an assurance that, that can be replicated on the forward, I suppose, would have to be in their mind. Just curious how you’re thinking about presenting that beyond the obvious successes and the revenues to the collaboration.
Ramy Farid: Chris, I’ll start off and talk a little bit about the visibility on software and the contracts. And then maybe Ron can talk about the sort of secondary effects that we’re seeing from things like Martin and how that’s spilling over to our participation in the market overall the industry. So starting up on the visibility of software; look — as you can imagine, Chris, what I prefer that we had like a very steady sort of through the year, revenue ramp up, of course, that would make our lives and your lives easier and make everything more predictable. But the reality is that our current contracts and our revenue is heavily driven by those large customers, and they tend to make their step-up at the end of the year. We go through the full year R&D cycle, and they say, do we like this?
Do we not like this? And then, how much — how many more people do you want to use it? How many more programs, how many more licenses, and that’s what drives that step up. As you know, there are a number of different models for software sales and licensing and revenue recognition, our contracts currently drive the revenue recognition that you’re seeing and that sort of heavy skewing upfront. — we are certainly contemplating whether there are things that we can modify in our contracts, particularly as we’re shifting more and more over to sort of cloud-hosted relationships. That could alter that and to be kind of transparent, smoothing out a little bit. That is not something that we are ready to implement now and that would entail some changes to our contracts and how we go to market.
But I think that it would certainly behoove us to take a hard look at that. So you can imagine that we’re doing that. But again, to reiterate, there’s a huge amount of excitement about our technology in those largest customers. And we’re not going to hold up realizing the potential of that excitement to change over to a certain format of contracting or revenue. I mean our primary focus is growing the business and capitalizing on these opportunities. Rob, do you want to talk about that?
Geoff Porges: Yes. I will add that everything that Jeff said was right, but also I think it’s important to point out that we have gotten pretty good at predicting the quarters, and we’ve been really, really good about meeting our guidance, and we have a long track record of that. So I hope that we’ve gotten to a point where you can trust us when we talk about our guidance and what we see in future quarters and for the full year. Now I’m going to try and answer the question you asked the second question, Chris, but I won’t go for too long in case I’m not answering your question, and please tell me if I’m not. So the — it’s really become — I mean we’re really excited about this. The validation that we’re getting from our partners that go back quite a way.
As we talked about Nimbus and Morphic and structure, but also our more recent collaborations and then, of course, our internal programs. And we’re — that’s pretty excite, really overwhelming set of validation that I think is unique for a platform company, and we’re really putting a big effort into getting that story out, talking about them. And we’re so fortunate to have fantastic partners that are not shy about participating there. We have a lot of our partners are joining us in those discussions and talking about our role and the technology and expertise. That’s been incredibly helpful as you can imagine. We have lots of internal — lots of meetings and various venues in which we can present that data. And I can tell you that — and this is what I was saying before, there’s no question that heads of research and pharma companies are noticing, and it’s really changing the nature of the discussions.
I think this enthusiasm we’re talking about is the direct result of us getting those really compelling stories out there. Did I answer your question?
Chris Shibutani: Yes, that was really helpful. I appreciate the perspective. Thanks.
Operator: Thank you. Our next question comes from Michael Ryskin at Bank of America.
Michael Ryskin: Great. A couple for me real quick. One is in the past, you’ve sort of given us a lot of color on your customer mix and your customer closures. So I certainly recognize that a lot of it is biased towards larger pharma and larger biotech on the software side of things. I’m just wondering, with the tail end of that, the smaller biotechs, are you seeing any change in terms of conversations in terms of tone just in the last couple of months? Obviously, there’s been a lot of debate there. It’s a small part of your mix, but so I’m just curious if you deterioration in that part of your
Ramy Farid: Jeff, do you want to take the first one Yes, and then if there’s any…
Ramy Farid: Sure. So just to comment on the customer mix. As we’ve said in the past, normally, if I take the full year, the smaller biopharma companies is a relatively small component of our revenue, but — to give you a little bit of context, the Q2 average customer size is less than half of the full year average customer size. So that’s just the mix of when customers are renewing and those contracts are up. So that’s why I highlighted in my earlier answer that the effect of emerging companies not being financed is most felt in that sort of quarter. Now what we’re seeing is sort of — it’s the absence of new, meaning we’re not seeing a new company show up and say, okay, we want to sign a significant software contract and start our drug discovery activities.
We’re definitely in a position to have conversations with venture capital and with investors in some kind of companies that are almost virtual companies that would like to use our software to go after a particular target, and we’re engaged in those discussions. But the volume of them and the opportunities really aren’t what they have been in prior years. But the counter to that is that the existing customers are generally sticky. The — increasingly, they’ve been using our technology for their drug discovery efforts for 2, 3, 4, 5 years, and they’re not going away. It’s just the absence of the new that is giving out contributing to that revenue guidance that I provided. So hopefully, that helps answer your question.
Michael Ryskin: I think it was the second…
Ramy Farid: I think that was it, right? Was there a second part?
