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Edited Transcript of MODN earnings conference call or presentation 7-Nov-17 10:00pm GMT

Q4 2017 Model N Inc Earnings Call

Redwood City Nov 8, 2017 (Thomson StreetEvents) -- Edited Transcript of Model N Inc earnings conference call or presentation Tuesday, November 7, 2017 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David Barter

Model N, Inc. - CFO

* Staci Mortenson

ICR, LLC - MD

* Zack Rinat

Model N, Inc. - Founder, Executive Chairman and CEO

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Conference Call Participants

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* Chad Michael Bennett

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Jackson Edmund Ader

JP Morgan Chase & Co, Research Division - Analyst

* Kevin Ruth

* Patrick D. Walravens

JMP Securities LLC, Research Division - MD, Director of Technology Research and Senior Research Analyst

* Steven William Wardell

Chardan Capital Markets, LLC, Research Division - Senior Equity Research Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Model N Fourth Quarter Earnings Call. (Operator Instructions) Please note, this conference is being recorded. I will now turn the conference over to your host, Staci Mortenson of ICR. You may begin.

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Staci Mortenson, ICR, LLC - MD [2]

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Good afternoon. Welcome to the earnings results call for Model N's fourth quarter and full year 2017, which ended on September 30, 2017. With me today are Zack Rinat, Founder, Chairman and Chief Executive Officer; and David Barter, Model N's Chief Financial Officer.

A press release was issued after close of market and is posted on our website where this call is being simultaneously webcast. The primary purpose of today's call is to provide new information regarding our fourth quarter and full fiscal year 2017 performance and our financial outlook for our first quarter and full year fiscal 2018.

Commentary made on this call may include forward-looking statements. These statements are subject to risks, uncertainties and assumptions. Please refer to the press release and the risk factors in documents filed with the Securities and Exchange Commission, including our annual report on Form 10-K and our quarterly reports on Form 10-Q for information on risks and uncertainties. Should any of these risks or uncertainties materialize or should our assumptions prove to be incorrect, actual company results could differ materially from those forward-looking statements.

In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, GAAP results. Reconciliations of the non-GAAP metrics to the nearest GAAP metric are included in the earnings release issued today, which is available on our website. I encourage you to visit our Investor Relations website at investor.modeln.com to access our fourth quarter and fiscal year 2017 press release, periodic SEC reports and the webcast replay of this call. Finally, unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal year '16.

With that, let me turn the call over to Zack.

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Zack Rinat, Model N, Inc. - Founder, Executive Chairman and CEO [3]

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Good afternoon, and thank you for joining us today. I will start the call today discussing Q4 fiscal year '17 and fiscal year '17 financial and operational results in the context of the strategy that we communicated in our Analyst Day in February and then discuss our strategy for fiscal year '18 and beyond. David Barter, our CFO, will follow me with the financial details.

Model N ended a record fiscal year '17 with another record quarter with the following highlights: one, fourth consecutive well-executed quarter, exceeding our guidance on both the top and bottom lines as we did in Q1, Q2 and Q3 of fiscal year '17; two, record quarterly and annual overall revenues; three, record quarterly and annual recurring revenues; four, positive adjusted EBITDA and cash flow. When I reassumed the CEO role last November, our first priority was to focus on execution and deliver both financial and operational results.

Our second priority was to capitalize on the strategic opportunity to acquire Revitas. Our third priority was to execute the integration strategy and make the acquisition a success for both our customers and shareholders. And our fourth priority was to enhance the executive leadership of Model N.

Q4 '17 and fiscal year '17 financial results are strong testaments to the excellent progress we made on all of these priorities. I am very proud of the successful integration of Revitas and what our united Model N team has accomplished. I am fortunate to work with exceptional employees who dare to make a difference for our customers.

Our Life Sciences vertical had a record year with strength in both pharma and med tech. We continue to believe that the Revitas acquisition is transformative for Model N. The results we delivered for both our customers and our shareholders in fiscal year '17 are a strong initial leading indicator of this transformation. The life sciences industry is at an inflection point where revenue management is crystallizing as a strategic imperative. Model N is helping the industry to leverage technologies, such as cloud, SaaS, mobile, social and big data to capitalize on the strategic opportunities and overcome the strategic challenges.

Our main focus in fiscal year '17 was on our customer success and executing to both our short-term integration strategy and long-term vision. We delivered on our customer commitments, leveraged the best of both Model N and Revitas, integrated the best of both application, modernized the user interface, moved the Revitas product to the cloud and now offer all products only as Revenue Management as a Service, or RMS.

Finally, we continue to innovate by delivering new product, such as global tender management, which enables med tech and pharma companies to better manage their global revenues. We believe that the Revenue Cloud for MedTech and Revenue Cloud for Pharma are now the industry-leading end-to-end solution, enabling global med tech and pharmaceutical companies to manage their global revenues in the cloud.

Probably the strongest indicators for customer alignment with our strategy was the purchase decision that they made during fiscal year '17 and, in particular, in Q4 fiscal year '17. We had many follow-on deals including Sanofi, Valeant and Stryker, to name a few. One in particular I would like to highlight is Gilead. Gilead signed a 3-year deal with an RMS on-premise transition, or OPT. They have been a customer of Model N for over a decade and of Revitas Validata for a few years.

Gilead is no stranger to our cloud offering. Their initial step in the cloud was through our Global Price Management offering. Through OPT, they will move over the next 9 to 12 months from an on-premise implementation to our Revenue Cloud for Pharma serve as RMS. We are excited for the benefit Gilead will realize as well as for the playbook we are developing, including professional services, migration tools and testing to help our on-premise customers transition to the cloud.

Our focus remains on driving our business towards 100% SaaS, both through new customer acquisition as well as on-premise to cloud migration. Q4 fiscal year '17 also capped a record fiscal year '17 for our High Tech business. In particular, we were pleased with our success outside the semiconductor space. We believe that revenue cloud for High Tech is now the most comprehensive end-to-end Revenue Management Application Suite for High Tech, including rebates and Channel Data Management.

Furthermore, we made major improvements to our Rebate Management offering, added documentation in key areas like quotes, contracts, pricing, making it more useful to new customers and supported upgrades and go-lives for multiple customers. We also had many wins, including a Q4 deal with Nexperia. Nexperia is the global leader in discrete and logic devices and employing 11,000 people across Asia, Europe and the U.S. Nexperia will deploy an end-to-end revenue cloud for High Tech to manage both their direct and channel revenues. Revenue cloud will be deployed for about 800 end users, both within the company and across its channels for quoting, pricing, contract management, design registration, chip and debit and credit claims.

While we are very pleased with our deal wins, we are equally excited when our customers go live and move into production. In the fourth quarter, Seagate Technology, a global leader in data storage, went live with the initial Phase 1 rollout of our revenue cloud for High Tech. The Phase 1 global rollout included the following: one, regional price list; two, governance for channel-based negotiations; three, advanced rebate management for both partner and customers; four, data maps for advanced analytics and price waterfall analysis; five, integration of Oracle ERP with revenue cloud.

Seagate delivered a meaningful business process automation through revenue cloud in this initial go live. This is a great example of our success outside the semiconductor industry and further proof point of the differentiation of revenue cloud for High Tech. I'm very proud of our execution and the ROI Seagate is realizing.

We are building upon the success of fiscal year '17 to deliver a strong fiscal year '18, delivering for our customers and our shareholders in the following areas: one, drive revenue management as strategic enabler for our customers and accelerate the growth of Model N; two, enable our customers to complete their end-to-end revenue clouds and accelerate our land and expand strategy by cross-selling and upselling to our install base; three, leverage Revenue Cloud for MedTech, Revenue Cloud for Pharma and revenue cloud for High Tech to further expand in our core verticals and, in particular, med tech, semi and High Tech and pharma mid markets; four, accelerate the transition of revenue management into the cloud and complete the transformation of Model N to 100% SaaS and maintenance revenue; five, optimize the cost structure of Model N and deliver profit and positive cash flow; and six, innovate by taking advantage of the significant market opportunity for revenue management.

In conclusion, this was a record year for Model N. We successfully integrated Veritas (sic) [Revitas], made excellent progress on our goal of becoming 100% SaaS and of building a business to deliver sustainable growth and profitability. Our entire organization is in line around the strategic initiative I just outlined and believe we are well positioned for success.

I'd like now to turn the call over to David to discuss more of our financial results and guidance for Q1 and fiscal year 2018. David?

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David Barter, Model N, Inc. - CFO [4]

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Thank you, Zack. We continue to make progress driving growth, scaling the business and achieving the company's operational and financial objectives. In particular, we had another strong quarter across our key metrics, including SaaS and maintenance revenue growth, gross margins, positive adjusted EBITDA and free cash flow during the fourth quarter.

A leading way we measure growth is through SaaS and maintenance revenue and in the fourth quarter, SaaS and maintenance revenues were $29.6 million, a 32% increase year-over-year. Included in this is approximately $3.6 million from the Revitas acquisition, leading to organic growth of 16%. License and implementation revenues were $6 million, a 2% decline from the prior year period. Included in this was approximately $1.6 million attributed to the Revitas acquisition. As a reminder, we no longer sell on-premise perpetual licenses and expect this revenue line to continue to decline in fiscal year 2018 as we burn off the backlog and transition customers to the cloud.

Total revenues for the fourth quarter were $35.6 million, a 25% increase from the $28.5 million in total revenue in the year-ago period and well above our guidance range of $34.6 million to $35.1 million. Our GAAP revenues also reflect a purchase accounting entry of $1.3 million. Before I move on, I want to remind you that my commentary will be focused on non-GAAP results, which excludes the impact of purchase accounting. A reconciliation of non-GAAP to GAAP results is provided with our earnings press release issued earlier today.

Non-GAAP gross profit for the fourth quarter was $22.7 million compared to $15.8 million in the fourth quarter of fiscal 2016. Overall non-GAAP gross margin in the quarter was 61% compared to 55% in Q4 of last year.

Non-GAAP operating expense was $22.5 million in the fourth quarter of fiscal 2017 compared to $18.7 million in the fourth quarter of fiscal 2016 and $23.9 million in the prior quarter. The decrease in operating expense sequentially is largely driven by a full quarter of synergies from the Revitas acquisition.

Non-GAAP operating profit for the period was $144,000 compared to a loss of $2.9 million in the fourth quarter of last year and better than our guidance of an operating loss of $1 million to $500,000. Non-GAAP net loss in the fourth quarter was $1.7 million compared to a net loss of $3 million in the fourth quarter of fiscal 2016.

We produced a non-GAAP net loss per share of $0.06 based on 29.2 million shares compared to a net loss per share of $0.11 based on 27.8 million shares in the fourth quarter of last year. This was ahead of our guidance of a non-GAAP net loss of $0.09 to $0.08 per share.

On a GAAP basis, operating loss for the period was $7.2 million compared to a loss of $7.7 million in the fourth quarter of last year. GAAP net loss in the fourth quarter was $9 million compared to a GAAP net loss of $7.8 million in the fourth quarter of fiscal 2016. The difference is driven by the $1.4 million of expense associated with the financing of the Revitas acquisition. Adjusted EBITDA for the fourth quarter was a positive $1 million, a meaningful improvement compared to the negative $1.7 million in the year-ago period and the negative $1.5 million in the prior quarter.

At the end of the fourth quarter, total deferred revenue was $49.4 million. I would like to remind you, deferred revenue is not a perfect measure for our business. It's not uncommon in life sciences for customers to have quarterly payment terms. There is also some inherent seasonality in our maintenance billings from our legacy on-premise business.

We ended the fourth quarter with $57.6 million of cash and cash equivalents, which is up from $51.8 million at the end of the third quarter. Cash flow provided by operations was $4.3 million, which after adding CapEx of $69,000 and capitalized software of $34,000, produced free cash flow of $4.2 million. This compares to cash flow used in operations of negative $4.6 million in the fourth quarter of last year, which after adding approximately $0.5 million of CapEx and capitalized software of $0.2 million, produced negative free cash flow of $5.2 million.

Let me briefly touch on the full fiscal year 2017 results. Total GAAP revenue grew 23% to $131.2 million with SaaS and maintenance revenue increasing 25% to $108.1 million. Total recurring revenue for the fiscal year 2017 was $86.2 million. Within that, subscription revenue was $45 million or 34% of total revenues. Maintenance and managed services was $41.2 million or 31% of total revenues.

Non-GAAP gross margin for the year was 58% compared to 53% in the prior year. Annual recurring revenue, or ARR, at September 30 was $48 million, which compares to $35 million at the end of fiscal year 2017. Included in ARR was approximately $4 million from the acquisition of Revitas related to term licenses and hosting arrangements with customers primarily in life sciences. Non-GAAP loss from operations for fiscal year 2017 was $11.8 million, an improvement compared to an operating loss of $17.3 million in the fiscal year 2016.

Non-GAAP net loss for fiscal year 2017 was $16.9 million compared to a loss of $17.4 million in fiscal year 2016. Non-GAAP net loss per share for fiscal year 2017 was $0.59 compared to a net loss per share of $0.64 in the prior year. Adjusted EBITDA for fiscal year 2017 was a loss of $8.3 million compared to a loss of $12.6 million in fiscal year 2016. For the fiscal year, cash used in operations was $12 million and free cash flow used was $12.3 million.

Before I provide guidance for fiscal year 2018 and Q1, I would like to provide perspective on how we're thinking about the business. We remain focused on several key initiatives: one, driving growth with Revenue Management as a Service as we move the business towards 100% SaaS and maintenance revenue. With this, we expect to see ongoing declines in our license and implementation revenue. For fiscal year 2018, we expect SaaS and maintenance revenue to be between 86% and 88% of total revenues. We expect to start the fiscal year at the Q4 exit rate of approximately 83%, and we expect the percentage contribution from SaaS and maintenance revenue to increase over the course of the fiscal year.

Two, delivering scale and meaningful levels of profitability. We expect to be adjusted EBITDA positive in each quarter of fiscal year 2018.

Three, building the business to generate sustainable levels of cash flow. We expect to use cash in the first part of the year to the payment of Q4 commissions and the annual corporate bonus. We expect to be free cash flow positive in the back half of 2018. On a free cash flow basis, it is worth reminding you that we will have nearly $5 million of interest payments related to the Revitas acquisition. We will also be paying down $5 million of our debt in the latter part of the year. Overall, we expect to improve our free cash flow by approximately $10 million in fiscal year 2018 compared to fiscal year 2017.

Moving on, let me outline our guidance for the first quarter of fiscal year 2018 as well as our expectations for the full year. Please note, this guidance is GAAP revenue guidance, and it includes the corresponding purchase accounting adjustment for Revitas, which is expected to be in the range of $700,000 to $800,000, and it will only impact the first quarter of fiscal year 2018.

For the full year fiscal year 2018, we're expecting our growth to be driven by SaaS and maintenance revenue, reflecting our shift towards recurring revenue and the fact that we're no longer selling perpetual licenses. For the full year, we expect total revenue of $147 million to $150 million. We expect SaaS and maintenance revenues to grow organically at least 15%. We believe our growth in SaaS and maintenance will be driven by healthy cloud subscription growth and professional services related to our on-premise transition, or OPT, program which Zack mentioned earlier. Since we no longer sell on-premise licenses, we do not expect our maintenance revenue to grow. Our license and implementation revenue is expected to decline year-over-year as we burn down the backlog.

We expect non-GAAP income from operations in the range of $0.5 million to $3.5 million and non-GAAP loss per share in the range of $0.23 to $0.13 based on a weighted average share count of 30 million shares. This assumes approximately $5.6 million of net interest expense and amortized debt financing fees.

For the full year fiscal 2018, we expect adjusted EBITDA to be in the range of $4 million to $7 million. We expect to organically grow ARR by approximately 25%.

For our first quarter ending December 31, 2017, we expect total revenue to be in the range of $37 million to $37.5 million. We expect non-GAAP operations to be in the range of a loss of $300,000 to a profit of $200,000. This would lead to a non-GAAP net loss per share in the range of $0.07 to $0.05 based on a weighted average share count of 29.6 million shares and assuming approximately $1.4 million of net interest expense and amortized debt financing fees. Adjusted EBITDA is expected to be in the range of $600,000 to $1.1 million.

We enter fiscal 2018 in a healthy position. We're building a company that will deliver sustainable levels of growth and profit. We are leading our industry through product innovation in the cloud and our focus on customer success, we believe, leads to a very bright future for Model N.

With that, let me turn the call over to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Jackson Ader with JPMorgan.

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Jackson Edmund Ader, JP Morgan Chase & Co, Research Division - Analyst [2]

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First question from our side. It looks like the 2018 non-GAAP operating income guidance assumes some investments. And so after these cost synergies from Revitas have been reaped and I think, David, you mentioned that this was the first full quarter of those synergies being baked in, where do you guys actually think you'll see some investments in the operating lines in 2018?

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David Barter, Model N, Inc. - CFO [3]

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Yes, in terms of operating expense, we're actually not planning on investing too much. I think, Jackson, we'll have kind of a little bit of growth in sales and marketing. But all in all, I think we're kind of pushing and we -- again, we believe that the investment through Revitas in terms of picking up just a really great sales team and an R&D team, we feel like that will kind of carry us through. And so I think kind of the bulk of what you'll see in the P&L is the annual focal review. We'll kind of obviously kind of raise some wages. I think we have some -- a little bit of work to do around benefits as we take employees over to our benefit package. But all in all, kind of the cost structure at least in terms of just core headcount will kind of largely run through from Q4 '17 through '18. So a little bit of investment around the edges, but not a great deal.

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Jackson Edmund Ader, JP Morgan Chase & Co, Research Division - Analyst [4]

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Okay. Okay. And then, Zack, a question for you. On the Gilead deal, the on-premise transition. I mean, was this a case where they had gotten a taste of the cloud in another product? They just said, "Okay, we're going to make [this work]." How involved was the sales cycle here to say, you know what? You guys really should be moving toward a complete cloud infrastructure?

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Zack Rinat, Model N, Inc. - Founder, Executive Chairman and CEO [5]

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Thank you for the question. Cloud and cloud delivery is becoming to be the only delivery model for any company, including life sciences companies. And the success of the SaaS solution, including ours, really prove the business model. And as you know, Jackson, we haven't sold an on-premise solution for quite a while. And when you look at the market, that's the way that the market prefer to consume, and that's the way that we prefer to engage as the rest of the industry. When you look at the core applications of Model N and the customers,of what they lean on, kind of, on-prem, I think it took some time until people really realized the kind of the benefit of this in core kind of core application. It takes some time to mature -- it took some time to -- for us to gauge, actually, their [current differences]. And I believe that over time, actually all our customers are going to move in this direction. And Gilead is a thought leader. Gilead is a company that is innovative across the board. And yes, they realized the benefit of the model from previous implementation, including Global Price Management, and now it's become apparent that that's the next best stage in the evolution.

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Operator [6]

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Our next question is from Chad Bennett with Craig-Hallum.

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Chad Michael Bennett, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [7]

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Nice job again on the quarter, guys. Great execution. Love the cash generation and the balance sheet improvement. Zack, you mentioned a number of deals in the quarter, which it seemed like a pretty good quarter from a deal flow standpoint. I just want to make sure I clarify. Along with the Gilead kind of conversion, I guess you'd call it, I think you talked about Sanofi, Valeant and Stryker, if I have the names correct. Were those conversion deals booked in the quarter, or were those for the whole year? And then maybe if you could touch on, on top of that, whether it's Gilead or the other deals, kind of what that dollar conversion ratio is looking like currently, whether it's Gilead or other conversions in terms of maintenance multiple to SaaS.

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Zack Rinat, Model N, Inc. - Founder, Executive Chairman and CEO [8]

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Right. So first of all, the deals that we mentioned were deals that were closed in the quarter, and these were basically a follow-on deal. It's not a conversion deal, so just wanted to clarify -- kind of clarify that. And these were significant deals, follow on, on kind of the previous and we just named the 3 in addition to a few others that we had in kind of in the quarter. So I'd like to kind of start with this. We highlight kind of Gilead because of the significant of these deals and because of the fact that there is a lot of interest in the conversion of [the co-install] base to kind of to the cloud. And when we spoke about it in our Analyst Day, we said that what we see right now from a conversion point of view is somewhere between 3 to 5x, and then most conversion fall within this range of support and maintenance through SaaS.

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Chad Michael Bennett, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [9]

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Got it. Helpful. And then maybe a couple for David, if I may. David, did you update us on where you exited the year from a SaaS ARR standpoint?

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David Barter, Model N, Inc. - CFO [10]

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I did. We exited the year almost -- right at $48 million. So what I shared was we -- the ARR finished right at the top end of the range.

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Chad Michael Bennett, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [11]

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Got it. Perfect. And then 25% growth off that for next fiscal year, is that how you're talking about it?

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David Barter, Model N, Inc. - CFO [12]

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That's exactly what we're targeting internally.

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Chad Michael Bennett, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [13]

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Okay. And if we were to kind of break that down, that ARR growth of 25%, how much do you think that real conversions kind of benefit that number this year versus selling in additional deals like you talked about with Sanofi, Valeant and Stryker versus net new wins? Is there a way to kind of break it down like that or at least directionally think about that?

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Zack Rinat, Model N, Inc. - Founder, Executive Chairman and CEO [14]

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So that's important information, and we will share it in our Analyst Day in a couple of weeks. And so I think kind of knowing in this stage when you look at the direction of the company, we see the kind of the following opportunities, as I mentioned, the 3. The first one is really to further expand in the industries that we are in. In particular, when you look at in medical device and in High Tech, we have plenty of ways to expand beyond the current customers that we have. And also the pharma mid market is an exciting opportunities for us. Then when you look at the -- our customer base, our main focus is to move them to the cloud, and that also gives us an opportunity to cross sell and upsell as part of moving them to kind of to the cloud. So that's the next part of the strategy for kind of for the year, and these 2 endeavors are going to yield the growth in ARR that we kind of outlined.

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Chad Michael Bennett, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [15]

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Got it. And then sorry I lied, one last one for me. David, just on the guide, again, the $147 million to $150 million, and I -- if I look at your first quarter guide, even at the bottom end if you just kind of annualize that number, you're at $148 million, right? And I know you have some headwind on the L&I line, specifically more maintenance than license. But the growth piece of your business, whether it's SaaS and services attached to them, is now at a point where it should move the needle on overall growth, which it has been reflected in your guide. But I mean, are you guys -- obviously, you guys have put together a strong track record of execution the last 4 quarters. $37 million flat every quarter and next year looks fairly conservative to me. Am I missing anything?

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David Barter, Model N, Inc. - CFO [16]

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Well, I think the only thing that I would add is we kind of talked about on the call that the backlog that we have on the legacy on-prem implementation, and so we're committed to kind of keeping that backlog and not really adding to it. There may be a few projects coming out of the old Revitas business, and we may have 1 customer for Model N where we have to continue to sign some change orders, but we really are actively driving that number down. And so I think that's what's reflected in the guide is, these conversations, which -- whether it is the Gilead or whether it's other conversations, these conversations take a while. And so it does -- it is one, Chad, where it drives almost a little bit of a pause as you work through diligence and you work through what that transition plan is to go from a bespoke customized on-prem implementation to a native, effectively out-of-the-box cloud implementation. And so it's kind of what the guide contemplates, and that's why I wanted to share that right now the -- when you think about our SaaS business, we're -- the guide is contemplated on 15% organic growth. And so I think we're pretty laser-focused on continuing to grow that one in a very thoughtful way while, again, kind of pulling back from that prior chapter of the company.

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Operator [17]

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Our next question is from Steve Wardell with Chardan.

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Steven William Wardell, Chardan Capital Markets, LLC, Research Division - Senior Equity Research Analyst [18]

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So my question is that you pointed to organic growth of 16% in the quarter. Can you help break that down? And what products are growing faster than others and what segments are growing faster than others that, in fact, contribute to that 16% growth?

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Zack Rinat, Model N, Inc. - Founder, Executive Chairman and CEO [19]

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Yes, so when you look at the, first of all, the growth of the company, as I mentioned, this was a record year for both Life Sciences and for High Tech. So both verticals did very well on all aspects and definitely from revenue point of view. In the Life Sciences, this was a good year for both pharma and for medical device in the next level of segment. And in the High Tech, we were able actually to bridge outside the semiconductor space into OEM when we spoke about Seagate, and we can speak about kind of about others. So it's very difficult to speak about a specific product because when we look right now across the board, we sell an end-to-end revenue cloud with our industry-specific for medical device, for pharma and for kind of for High Tech. When we do a deal like Seagate or like Nexperia or others, we sell basically an end-to-end solution. And then when you look at the install base, we usually augment the current implementation, so they complete the end-to-end solution with solutions like CLM or CPQ, augmenting the kind of those solutions. So it's tough to narrow this down to a single product because we sell an end-to-end application in different customers and different solution. And when we sell to them, we just complete what they don't have.

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Operator [20]

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Our next question is from Brian Peterson with Raymond James.

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Kevin Ruth, [21]

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Kevin here on for Brian. As you look at the acceleration of your business, excluding Veritas here as we exit the year, do you think that's maybe, in part, accelerated sales cycles for customers potentially looking at you versus Revitas previously that, I guess, opted to go with a cloud-oriented solution?

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Zack Rinat, Model N, Inc. - Founder, Executive Chairman and CEO [22]

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When you look at the sales cycle kind of right now, I would say they are a little bit shorter than what they have been in the past, but not much. And as you know, when people make purchase decisions, it's a pretty significant decision and it's significant in a lot of aspects. I think the first one is very transformative, especially right now in the context of digital transformation of companies and how they use this technology in kind of in the cloud to advance the business. It has big impact on the organization because it's an end-to-end solution. And it's a solution that is going to stay there for a while because it's really becoming to be as part of the financial backbone of kind of the company. So I would say that the sales cycle are a little bit shorter but not by much.

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Kevin Ruth, [23]

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Got it. And then maybe secondly, profitability upside has been pretty consistent the last few quarters. How much of that has been driven by better-than-expected Revitas synergies? And do you think we'll see further improvement from the acquisition as we think about margins going into fiscal '18?

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David Barter, Model N, Inc. - CFO [24]

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Yes, I mean, part of it is certainly attributed to just good execution, and I think we had communicated early on that we made all the decisions and we really executed the -- I think a pretty thoughtful playbook. But I think when you think about the gross margin for the business, obviously the kind of the modern cloud environment that we have based on AWS, the more we -- kind of the more we put through that platform, obviously, it tends to be pretty accretive. So I think it is one where we're, I think, we're trying to operate and kind of execute a great business combination and then ultimately kind of building a good modern cloud business.

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Zack Rinat, Model N, Inc. - Founder, Executive Chairman and CEO [25]

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And I think what we build there really is capability and economies of scale. And so as we scale the business, as we move things to kind of to the cloud, we have the infrastructure, we have the organization, we have the processes, we have the tools. We obviously still need to develop them, as always. But the basis -- kind of the basis there. And then when I look at the -- our ability to deliver better results, some of it is because of the execution on Revitas, but I would say also some of it is because of much better overall execution of the company on all aspects, starting with kind of on the go-to-market and others. And you have to remember that in the context of acquisition, I'm very proud about what the team has been able to accomplish. And as now the team is working on much better than the early days, I think we can actually accelerate the way that we execute.

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Operator [26]

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(Operator Instructions) Our next question is from Pat Walravens with JMP Group.

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Patrick D. Walravens, JMP Securities LLC, Research Division - MD, Director of Technology Research and Senior Research Analyst [27]

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So Zack, now that you've gotten a lot of the sort of the heavy lifting done on this acquisition, what are your sort of the biggest areas that you're personally going to focus on this coming fiscal year?

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Zack Rinat, Model N, Inc. - Founder, Executive Chairman and CEO [28]

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So a couple of aspects. I think the first one is just ensuring that we are doing the best job in terms of go-to-market. I feel personally that the market is there, and I feel very good about the strengths of our product. So that gives us an opportunity to kind of go and really push on the accelerators in terms of go-to -- kind of the go-to-market, and I think that's going to be one area of focus. The second one is that with the transition to the cloud and the strength that the company has right now, I believe that we can overlay right now few new products on top of the kind of the current solutions. And we're working with our customers to identify and to bring them to kind of go to the market because there are elements of cross-industry collaboration, leveraging new technologies, such as AI and others, and variety of other things that we can go and help our customers and the industries to be better. So another aspect of this is going to be really looking at the next stage of growth and what it is that we need to do from a product point there.

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Patrick D. Walravens, JMP Securities LLC, Research Division - MD, Director of Technology Research and Senior Research Analyst [29]

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Great. And I mean, end of the fiscal year, sales people try to close things out. How does the pipeline look heading into Q1?

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Zack Rinat, Model N, Inc. - Founder, Executive Chairman and CEO [30]

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We feel very good about our kind of our business. You have to remember, Pat, that we end our fiscal year in September and that's traditionally a slow quarter. But for us, it's been a record quarter kind of as a company, and we feel very good about what we have right now in the kind of in the pipeline. And to the year-end, we have a high level of confidence in the plan that we communicated to all of you right now.

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Patrick D. Walravens, JMP Securities LLC, Research Division - MD, Director of Technology Research and Senior Research Analyst [31]

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Great. And then, Dave, for you, I mean, I know it's all out there, but I think it would be helpful. Can you just sort of remind us of what the status of the debt is when it comes due and sort of the plan to pay it down?

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David Barter, Model N, Inc. - CFO [32]

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Absolutely. So the first wave of the debt comes due, and this is part of that seller's note that's due towards the end of June of 2018. And then kind of the next wave is kind of due, I think, approximately 8 months later. So I think it's kind of well within kind of how we're starting ahead from a cash flow perspective. We feel very comfortable with it. Obviously, kind of starting to turn that corner to be cash flow positive. It's kind of opening up some new opportunities, and Pat, we're starting to look at those opportunities to take down the cost of the debt.

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Patrick D. Walravens, JMP Securities LLC, Research Division - MD, Director of Technology Research and Senior Research Analyst [33]

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Yes, that would be great.

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Operator [34]

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Ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the call back to Zack Rinat for closing remarks.

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Zack Rinat, Model N, Inc. - Founder, Executive Chairman and CEO [35]

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Thank you all for joining the call today. We are very proud of what we have able to accomplish in fiscal year '17. I'm very proud of the team of the execution on the Revitas acquisition and the results that we delivered. We are looking forward to fiscal year '18, and we're looking forward to turning the company into a 100% SaaS company. And thank you very much for joining the call again.

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Operator [36]

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This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.