Model N's (MODN) CEO Edward Sander on Q3 2016 Results - Earnings Call Transcript

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Model N (NYSE:MODN) Q3 2016 Earnings Conference Call August 8, 2016 5:00 PM ET


Sheila Ennis - Investor Relations

Edward Sander - Chief Executive Officer

Mark Tisdel - Senior Vice President and Chief Financial Officer

Zack Rinat - Founder and Executive Chairman


Jackson Ader - JPMorgan Securities LLC.

Chad Bennett - Craig-Hallum Capital Group LLC.

Matt VanVliet - Stifel Nicolaus

Natasha Asar - JMP Securities LLC

Eric Limus - Raymond James


Greetings and welcome to the Model N Third Quarter Fiscal 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Ms. Sheila Ennis, Investor Relations for Model N. Thank you. You may begin.

Sheila Ennis

Good afternoon and welcome to the earnings call for Model N’s third quarter of fiscal 2016 which ended on June 30, 2016. With me today are Edward Sander, Chief Executive Officer; and Chief Financial Officer, Mark Tisdel.

Our press release was issued after the 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 you information regarding our third quarter fiscal 2016 performance our financial outlook for our fourth quarter and full fiscal year 2016 as well as our growth outlook for fiscal year 2017.

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 our 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 these forward-looking statements.

In addition, during today’s call, we will discuss non-GAAP financial measures. These non-GAAP financial measures, which are used as measures of Model N’s performance, should be considered in addition to, not as a substitute for or in isolation from GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our press release.

At times, in response to your questions, we may offer incremental metrics to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that this additional detail may be one-time in nature and we may or may not provide an update in the future on these metrics. I encourage you to visit our Investor Relations website at to access our third quarter fiscal 2016 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 2016.

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

Edward Sander

Thanks, Sheila and afternoon. Thank you everyone for joining us today to discuss Model N’s third quarter results. Model N executed well on our revenue and profitability targets for Q3 fiscal year 2016.

Total revenue for the third quarter was $27.9 million up 18% from the same period one-year ago and surpassing the top end of our guidance range. Q3 also marked the highest quarterly revenue in the history of the Company. We also exceeded our EPS guidance by $0.04 to $0.05 per share. We saw strong year-over-year growth in recurring staff and maintenance revenue with $22.8 million or 82% of this quarter’s total revenue being recurring SaaS and Maintenance revenue. This is up from $15.3 million and 65% for Q3 just one-year ago.

At the same time, we are lowering our most recent guidance for fiscal year 2016 full-year revenue from a range of $106.5 million to $107.5 million to a range of $106 million to $106.5 million. We are also lowering our year-end cash from a range of $70 million to $72 million to a range of $65 million to $66 million.

In addition, while it is still very early in the planning cycle, we currently anticipate that growth in total revenue for full-year fiscal year 2017 will be less than our anticipated growth of an 11% year-over-year for Q4 fiscal year 2016. We’ll share our complete guidance for fiscal year 2017 in our November earnings call, when we report on Q4 and fiscal year 2016. We will also hold another Analyst Day during the week following the November call.

Now there are three primary factors driving this change in our guidance. First, while we continue to see demand from new and existing customers for our cloud-based solutions, full scale migration of existing on-premise deployments to the cloud particularly by our life sciences pharma customers have been below expectations.

Second, our high-tech business is performing below expectations caused in part by go to market execution, which we believe we’ve addressed and the impact of consolidation in one segment of our high-tech business, the semiconductor segment. Third, while our Revvy business adds early traction it is currently behind plan. We are fixing it including adjusting our go to market approach.

In fact, we announced a strategic partnership with SteelBrick which was recently acquired by Salesforce in the third quarter. We remain optimistic about the prospects for this offering. And I’ll share an example illustrating why customers are choosing our Revvy CPQ and CLM offerings in a moment.

While the record total revenue and record recurring revenue results of Q3 are a testament to the strength of both the market opportunity for revenue management and the Model N offering. We are not pleased with our execution in the face of these challenges or the impact they will have on our results for fiscal year 2016 and fiscal year 2017.

Customers keep reiterating to me that the Model N offering is a core enabler to the strategic transformation of revenue management across their enterprise. Their behavior also attest that they believe in the differentiation and unique value the Model N revenue management cloud offering delivers as an integrated end-to-end flexible application suite that is natively interoperable with their other backbone systems like Salesforce and SAP versus other disconnected point solutions for pricing and quoting.

Here are four life sciences examples showcasing adoption of a Revvy solutions and our unique RMaaS offering which enables our customers to migrate from their enterprise on-premise deployments to the cloud.

Mylan N.V. is a new logo and it’s also an interesting win. Mylan is a $9.5 billion global generic and specialty pharmaceuticals company, registered in the Netherlands with operating headquarters in the UK. They have 35,000 employees, 13,000 separate products, 40 separate manufacturing locations and they operate in 145 countries. There business is incredibly complex with a diverse set of global business needs.

Mylan subscribes the Model N’s global price management solution to help build a centralized pricing system, but their entire portfolio of products and markets. Two important capabilities uniquely delivered by Model N were international reference pricing and launch sequence optimization.

Mylan wanted to improve their simulation approaches for launching and pricing products in various countries to ensure they didn’t price their products too low thereby missing revenue opportunity were too high driving volume and market share below plan. With Model N, Mylan is now able to launch a single common repository to competitively manage pricing, optimize launch strategies, and establish consistent governance worldwide.

Now BioMarin is another story, showing strategic update for our Revvy GPM solution like Mylan. BioMarin is a world leader in developing and commercializing innovative biopharmaceuticals for rare diseases driven by genetic cause. They have 2,000 employees and close to $900 million in revenue globally. BioMarin’s global price governance team use manual processes to perform their work.

They would manually calculate international reference price every time a price exception request was made, sometimes specific to an individual patient. This would impact pricing around the world and require extensive manual effort to calculate and approve. BioMarin subscribe to Revvy GPM and is currently deploying it globally. Were global pricing team is expected to go live later this quarter in 64 countries supporting all product families. With a single global cloud-based platform powering this critical business need BioMarin expects to secure pricing, governance, accelerated processes, and protect pricing and revenue on a global scale.

Another story centers around a global diversified technology company with over $20 billion in annual revenue. They chose to expand their model and footprint and replace a competitor at the same time. This company is a leading health technology company with 105,000 employees that focuses on diagnostic imaging, image guided therapy, patient monitoring, and health informatics products and services. They are embarking on a major business transformation program across the entirety of their global enterprise and they chose Model N to address their initiative to improve and simplify how they market, quote, sell, and serve their customers.

In Q3, they added Model N’s Revvy CLM, which stands for contract lifecycle management solution for direct integration to Revvy CPQ or configure price quote, which they subscribe to in Q2 of this fiscal year. In doing so they chose to stop competitors project already underway to pursue a better solution with Model N.

Model N will replace 10 legacy technologies from various suppliers including our competitor and provide a single integrated solution covering all global markets, products, services and channels. When fully implemented 7,000 users in over 100 countries will use Model N to manage, optimize, and streamline their quoting, pricing, and contracting processes for improve sales productivity and increase customer responsiveness and satisfaction.

Now particularly compelling part of the story regarding this customer’s decision to opt for Model N is not only the strength and scalability of our solutions, but the needed integration we offered into two key ecosystems important to them. The strategic platform for order to cash is SAP and they use sales force for market order. They needed a solution that could bridge both worlds. Our deep integration in the SAP’s variant configurator tool and native interoperability with sales force was particularly compelling. Both our solutions are built a top the platform and are being deployed directly via the sales force cloud platform.

Q3 also saw Lupin Pharmaceuticals leveraging the strategic unique RMaaS offering I mentioned earlier. Lupin is a $900 million U.S. subsidiary of Lupin Limited, a 2 billion Transnational Pharmaceutical based in Mumbai, India. Lupin has an aggressive growth strategy that targets both advanced and emerging markets. As the Company grows in both advanced and emerging markets they need a solution that can handle the geographic diversification and the different government regulations which coincide with those areas.

To balance the needs of these multiple global markets Lupin needed a sophisticated end-to-end revenue management system that would address its core regulatory and commercial pharma needs. And they subscribe to Model N’s revenue management cloud platform to do that. With their decision to transform and subscribe to the revenue management cloud Lupin has access to the entirety of Model N’s solutions for regulatory and commercial pharma revenue management needs.

Their enterprise subscription will always keep Lupin on the most current Model N release and allow them to use only the solutions that they need when they need them. Lupin’s benefit include predictable spent, access to a complete and powerful platform enabling it to support the introduction of a wide portfolio of branded engineered products quickly and easily via the U.S. business units as well as any non-U.S. business unit.

Now all of these customer win stories serve a strong testaments to the value of revenue management, our vision and our strategy. Despite the challenges I discussed earlier impacting our high-tech business, we remain confident that our solution set including the capabilities of our channel data management offering is the right one for our customers.

Just last month I was visiting one of our existing semiconductor customers where the CIO emphasized the strategic importance our solution offers to running their business. I believe will see improvement in this segment over time and I’m also looking forward to capitalizing on new opportunities for revenue management across other segments of the high-tech industry such as computer manufacturing and software.

As I mentioned last quarter I’m keenly focused on bringing the best talent to Model N’s leadership team to further strengthen the seasoned enterprise software experience we already possess. I’m happy to share the addition of another strong executive with the hire of Amelia Generalis, our new Chief People Officer.

Prior to joining Model N, Amelia led Anaplan’s HR function during a period of extraordinary growth where the employee base grew 600%. Before Anaplan she ran the HR function for the cloud business unit as success factors and stayed through their SAP acquisition. She is held a host of HR leadership positions at great brands like Electronic Arts, Shell Oil and the Ford Motor Company.

I’m also pleased to share the addition of another outstanding executive to Model N’s Board of Directors. Melissa Fisher is the current CFO at Qualys, a provider of SaaS, security and compliance solutions. She is an accomplished strategy and finance executive with broad technology sector knowledge and a successful track record in both large and startup environments. Prior to Qualys Melissa was Vice President at FP&A, IR and Treasury and Zynga. Prior to Zynga, she was head of Corporate Development, Treasury and IR at Digital River.

And before that led the M&A teams at various Investment Banking firms including [Forrest], Bank of America and Goldman Sachs. I’m truly pleased with the caliber of a talent we continue to attract the Model N. Together with our current team they’ll help us scale and continue to grow our business in the years ahead.

In closing, I want to reiterate that we delivered record third quarter overall revenue in SaaS and Maintenance revenue results exceeding our guidance for both revenue and profitability well also garnering several key competitive wins. I believe we’ll continue to see increasing levels of SaaS adoption in the segments we serve and continued investment in revenue management as a catalyst for our long-term topline growth.

I’d like to turn the call over now to Mark Tisdel, our CFO to discuss more of our financial results and guidance in greater detail for the remainder of the year. Mark.

Mark Tisdel

Thank you, Ed. Total revenues for the third quarter were a record $27.9 million, above our guidance range of $27.2 million to $27.5 million. This is up 18% from $23.6 million in total revenue in the year ago period. Also SaaS and Maintenance revenue grew a record $23.8 million for the quarter, up 49% from Q3 2015, license and implementation revenues were $5.1 million.

Our shift towards SaaS and Maintenance revenues continuing to progress and Q3 represents a record high for this metric at 83% of total revenue up from 81% in Q1 and Q2 of this year. This is over a 1,700 basis point improvement from the 65% of total revenue in Q3 fiscal 2015.

Our gross profit for the third quarter was $14.1 million, compared to $12.7 million for the third quarter of fiscal 2015. Net loss for the third quarter was $8.6 million, compared to $5.8 million in the third quarter of fiscal 2015. Loss per share was $0.31 for the third quarter compared to 22% in the third quarter of fiscal 2015.

Before I move on, I want to remind you that unless otherwise specified all of the metrics that we will be discussing from here on this call are non-GAAP results. Our non-GAAP metrics excludes stock-based compensation and other one-time item. A complete reconciliation of GAAP to non-GAAP results is provided with our earnings press release issued earlier today and available on the investor section of our website.

Non-GAAP gross profit for the third quarter was $14.9 million, compared to $13.1 million in the third quarter of fiscal 2015. Similar to recent quarters, gross profit in this quarter includes an impact of roughly $700,000 from the amortization of capitalized software that began upon the launch of our Revvy CPQ product. Overall non-GAAP gross margin in the third quarter was 53% up from 50% last quarter and compared to 56% in Q3 of last year.

As previously mentioned, the year-over-year decrease in gross margin is primarily due to our transition to a recurring revenue model. We continue to expect our gross margin to further improve as we migrate to a higher percentage of revenue with SaaS and Maintenance revenue. As we previously discussed, we expect Q2 to be the low point during this transition and we were pleased to deliver a 300 basis point improvement from Q2 to Q3.

We expect to show further improvement as we migrate to a higher percentage of our revenue to SaaS and Maintenance revenue. However, as we’ve stated in the past, we do expect some quarter-to-quarter variability in gross margins depending in the mix of revenue and other factors.

Non-GAAP net loss in the third quarter was $4.4 million compared to a net loss of $2.1 million in the third quarter of fiscal 2015. As we have discussed, we are experiencing larger losses versus years prior as we are transitioning to a recurring business model. We produced a non-GAAP net loss per share of $0.16 based on the share count of 27.6 million shares compared to a net loss per share of $0.08 based on a share count of 26.3 million shares in the third quarter of last year. This was better than our guidance of a non-GAAP net loss of $0.20 to $0.21 per share. Also we expect our operating loss and our net loss per share to improve as the transition to recurring revenue model continues to mature.

Adjusted EBITDA for the third quarter was negative $3.2 million compared to a negative $1 million in the year-ago period. We ended the third quarter with $70 million of cash and cash equivalents which is flat compared to the end of the second quarter. At the end of the third quarter, our accounts receivable balance was $19.8 million and our total deferred revenue was $32 million.

As previously mentioned, we believe our accounts receivable and deferred revenue balances are not a meaningful indicator of the business activity during a particular quarter as a timing of invoicing under our contract impact these items as we do not feel our customers upfront for the total contract fees.

For the third quarter, cash flows from operations was $500,000 which after adding CapEx of approximately $500,000 and capitalized software of $300,000 produced a negative free cash flow of $300,000. This compares to a cash flow from operations of $1.4 million in the third quarter of last year which after adding approximately $700,000 of CapEx and capitalized software of $600,000 produced a free cash flow of $100,000.

Similar to prior commentary in regards to our receivable and deferred revenue balance, there can be some quarter-to-quarter variability in our cash flow as it is impacted by the timing of our invoicing under contract.

Moving on, let me now outline our guidance for the fourth quarter of fiscal 2016, as well as our expectations for the full fiscal year 2016. For the fourth quarter ending September 30, we expect total revenues to range from $27.5 million to $28 million. Non-GAAP loss from operations in the range of $3.5 million to $3 million. This would lead to a non-GAAP net loss per share in the range of $0.13 to $0.11 based on a weighted average count of 27.8 million shares.

For the full fiscal year 2016 we expect total revenues to range from $106 million to $106.5 million or growth of 13% for the year as a whole. Non-GAAP loss from operations in the range of $18 million to $17.5 million non-GAAP net loss per share in the range of $0.66 to $0.64 based on the weighted average share of 27.0 million shares. The annual recurring revenue is now expected to range from $37.5 million to $38.5 million, an increase of 93% to 98% over fiscal 2015.

Please note, we define annualized recurring revenue as the monthly recurring revenue at September 30, 2016 multiplied by 12. We will provide our detailed annual guidance for fiscal year 2017 on our Q4 earnings call which will be in early November. Although, we have almost two months of Q4 left to complete, we currently believe our annual year-over-year growth will be less than the anticipated growth for Q4 2016, which is 11% year-over-year.

However, as Ed noted, we are still in the planning process so we will have much more visibility by November call. We also expect to have our second annual and Investor and Analyst Day in the day following the earnings announcement and we’ll provide much more detail at fiscal 2017 and beyond.

We’ll now open the floor for your questions.

Question-and-Answer Session


At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Jackson Ader of JPMorgan.

Jackson Ader

Hey, guys. It’s Jackson on for Sterling Auty. First question is customer migrations in the life science sector, is that that the migrations are taking longer is that that people just aren’t interested in migrating at all, so can we get a little bit more color on that?

Edward Sander

Sure Jack, this is Ed. Let me go and respond to that. Really good to speak to you on the call today. So it’s absolutely not that the migrations are not happening. They truly are. As a matter of fact that’s why I wanted to highlight this story around Lupin who successfully made that migration and converted there on-prem solutions over to SaaS to see the benefits of that.

Look, what we’re seeing is that the vast numbers of new projects that are occurring in the market are cloud versus on-prem. Projects are absolutely happening, but they’re complex and any kind of complex project is going to take some time.

Jackson Ader

Okay. Fair enough. And then you mentioned some of the go-to-market issues and you have already dealt with them or you feel like you’re already past some of the go-to-market issues in high-tech. And so what were the issues specifically and how were you able to deal with them?

Edward Sander

So yes, in terms of the go-to-market I want to just kind of underscore that the demand that we’re seeing in the market as we’ve mentioned we were talking about the on-prem conversions happening in life sciences. It’s truly absolutely strong and I really do believe that Model N has the right solution for the market.

Now in terms of what we did see, the issues that we saw on go-to-market are certainly not any of pipeline, which will be more of execution and high-tech we needed to improve some of the channel clarity that we had around our Revvy sales offering and we feel that we’ve done that with the partnership that we’ve expanded with sales force. We’re also looking at increasing some of our focus within the sales management team in the high-tech group.

I mentioned last quarter that we also added to our marketing bench strength with the addition of David Miller into our Product Marketing Group and he’s also helping us to refine some of that value differentiation to bring the definition of the opportunity and the value that solutions delivered to the customers out into clear focus. Look, in general the team is really engaged, we’re really excited and I believe that Model N is poised for success.

Jackson Ader

Okay, cool. Thanks guys.


Our next question comes from Chad Bennett of Craig-Hallum.

Chad Bennett

Yes. Can you mention what kind of the retention rate was in the quarter on the SaaS or recurring side of the business? And if there were any - if there was any attrition that’s impacting your guidance?

Mark Tisdel

Hey, Chad, it’s Mark. How are you?

Chad Bennett


Mark Tisdel

…for being on the call. So as we talked historically we do not disclose what our churn rate is and as you know historically our churn rate has been in the mid-to-high 90’s, since mid 2,000 we have done a great job of retain our customers. We’ve talked about before we strongly believe that our solution is integral part of our customers financial backbone, integrated into our ERP solution and because of that we’ve seen a very high retention rate. And we have not seen a significant change in that in the retention rate if we look out to Q4 and into 2017.

Chad Bennett

So I’m trying to reconcile like the previous questioner you know you guys reported in early May you reiterated the guide for the year, obviously did a little bit better this quarter. Bookings, I think your record new customer bookings I think by your commentary in the March quarter. So what I guess what abruptly changed so much in three months that you know you’re outlook has changed this dramatically.

Edward Sander

Hey, Chad, this is Ed. So look right out of the gate I want to underscore you know what I mentioned before when I was speaking with Jack responding to his question. The demand in the market is absolutely strong and what we’re seeing is that we have the right sized solution depending on whether or not a customer like Lupin is ready to go that full scale conversion or if they’re stepping into that solution over time.

I mentioned the story about the $20 billion technology company that actually purchased our CPQ solution as part of their transformation initiative back in Q1. They got to performing in Q2 and now they’ve added our CLM solution in Q3. So it’s not really an issue of demand what we saw as we went through the quarter really was the confluence of the three issues that I mentioned in the prepared comments.

And life sciences these are big projects and the strategic conversions from on-prem to the cloud they’re absolutely happening in fact the vast majority of the project that we’re seeing in the life sciences segment are the right projects for the Model N solution set, but they’re taking time and the pace is slow. The deals are absolutely happening though.

In high-tech I mentioned some of the go-to-market issues we also see saw some impact from the consolidation in the semiconductor space installing some of the cycles. Those cycles did not stop they’re absolutely still continuing. And then in Revvy, it really was just some go-to-market issues Chad and we’ve addressed - we’ve we’re addressing those we believe that the SteelBrick partnership is certainly also going to help.

So you know as I mentioned before the conviction that we have within the company is not that the demand for the solution has gone or removed from the market. It’s absolutely still there and we believe we have the right solutions in place to address them.

Mark Tisdel

And Chad I just want to add on top of that first of all we’re still very early in the planning cycle for 2017. We’re not providing full guidance at this time. We wanted to highlight what we expect based on some of the challenges that Ed outlined in the call, but as again we won’t be providing full guidance until the November call and then after that we will do a deeper dive with you on an Analyst Investor Day which be shortly at Q4 call give a little bit more color into what they 2018 looks like.

Chad Bennett

Okay. Thanks.


Our next question comes from Tom Roderick from Stifel.

Matt VanVliet

Yes, I am Matt VanVliet on for Tom. I guess, first question with regard to the partnership that you announced with SteelBrick and maybe some issues with go-to-market on Revvy. How does the CPQ product bid in with that partnership and maybe what was the biggest driver in terms of you know adding a prominent CPQ partner to a product portfolio that would seemingly already sort of addressed that issue.

Edward Sander

Hi, Tom so the addition of SteelBrick into the partnership. Is really an extension of the longstanding relationship that we already have with Salesforce. We made a pretty significant investment when we chose to put our Revvy platform on top of So we really view this is just – as a natural expansion.

Now in terms of how we work alongside one another, there is a great model that’s been around enterprise software for quite some time around co-optation. What we see actually is a natural fit within SteelBrick’s offering for our CLM product. What we’re also seeing is that the direction that we are both taking in approaching the market really does have a high degree of Venn diagram overlap.

What Salesforce wants to do is complement their portfolio with portions of the Revvy solution stack that are very strong. And our contract lifecycle management solution is the natural fit for that. So we’re still early days in this partnership, but we’re really looking forward to the pickup based on what we’ve heard and that excitement within their organization and bringing this to market together.

Matt VanVliet

All right. And then shifting gears, when we look at the Channelinsight acquisition, where are we with convergence of the product? And how have results been recently, I guess, since the acquisition? Is that having any impact on the lower expectations moving forward?

Mark Tisdel

Sure, Matt. So in terms of the acquisition, I’m pretty pleased so far with what we’ve been able to do in terms of making their team part of the Model N family. We have integrated our product teams and our go-to-market teams and their sales organization fits in nicely with our high-tech sales team, so we’re seeing good results there.

In terms of the overall product fit, there is actually similarities with the channel data insight offering and another offering that we have within life sciences, both actually use look at third-party data to try to get insights that can be used for pricing and acceleration of contract management and visibility. So we actually see pretty strong synergies. Overall, hand-in-hand, the PMI is going well and the unit is really performing for us.

Edward Sander

Just a little color on that. I think when we talked earlier about the integration point of CDM, the CDM offering, we don’t currently look at Channelinsight as a separate business anymore. We look at it as a CDM product, which fits into both the life sciences and the high-tech portfolio. We see activity on both life sciences and high-tech side of the business.

And the way we made that happen as we moved the number of our long-term life science research and development, R&D resources to actually to Denver to help with the integration efforts, and I think that’s been highly successful for us. It’s indicated to the people side as an important part of the equation, but also bringing the DNA of Model N into the Denver offices very important as well. So we see great potential for this business. We see good pipeline, and I think we see a roadway to success.

Matt VanVliet

And then last question for me. On a bigger, I guess, more strategic thought here. You’ve had some really good success towards your pharma customers getting the global price product out there. How do you use that to sort of leverage additional, whether they’d be revenue products or helping that facilitate the move to the cloud where it seems like you’ve had, at least from an announced standpoint, more traction there than maybe with some of the other newer products?

Edward Sander

Sure, Matt. This is Ed speaking again. So look, the GPM product really does solve a truly critical need, and with some of the capabilities that we did introduce into it, that I’ve mentioned, like international reference pricing and long sequence optimization, it really does deliver strategic value that can have demonstrable ROI back to the Company. In terms of the announcements that we’ve made, yes, we’ve had success with these product and we’ve shared that with the market in these calls.

I really wouldn’t view it – I really would view it as it’s a pull-through mechanism. So the $20 billion technology company that I mentioned earlier started with CPQ product, moved to the CLM product. We’re seeing similar movement from companies that already have our existing Revenue Management solution and are looking to step into the cloud with the deployment of the Global Price Management solution.

So it’s symptomatic of companies when they’re looking to move to the cloud, they’ll move first with a product that actually help them to solve a critical business need, and I think what you’re seeing in the uptake of our GPM product in the market is demonstrative, and this is really an area that the market is focused on and we have the right solution for them.

Mark Tisdel

And Matt to give a little bit of color on that I think we talked about this on the last call. More than three quarters of our customer base have a SaaS product that they purchased for Model N. So that kind of attributes back to Ed point and that’s whether it’s a full suite or whether it’s a point solution, our customers are moving to the cloud and this obviously we indicated earlier to still is a great opportunity to migrate our current on-premise solutions to the cloud.

Tom Roderick

All right. Great. Thank you.


Our next question comes from Patrick Walravens of JMP.

Natasha Asar

Hi. This is Natasha on for Pat. So I was wondering of the three factors driving that change in guidance, which one do you think drove that changes the most and which do you see yourself focusing the most time on energy on in the coming quarters? Or in other words which is most important to you. And then also could you provide us with above an approximate number of how many customers were added this quarter?

Edward Sander

Hi, Natasha. It’s Ed. Really good to speak to you again on his call. So look, first I want to note that while I mentioned three issues Model N delivered solid record results over the past three quarters year-to-date and we’re very happy of that fact and proud of that accomplishment. It really wasn’t any one single issue that is more important than the other. What we saw during the quarter as we went through it is – these three issues really came together.

The life sciences pipeline is absolutely solid and we’ve got great coverage across the team versus the plant. Also, as we’ve mentioned the on-prem conversions, they are still happening. So we thought just now about the uptake of some of our solutions. That’s actually the strength of the Model N platform. The solutions can be deployed in a modular fashion based on the Company’s need or like in the case of Lupin when they’re ready to go completely to the cloud, we also have a product for them.

We feel very confident in our ability to convert the remainder of our on-prem customers into the cloud. On high-tech, it was some expansion and focus on the sales leadership in the management within that team specifically and I’m happy with the work that we’re doing there to address that.

So again, it really wasn’t any single area Natasha that’s more important than the other. We believe that we’re poised for success and I’m happy with the work the team is doing to address each of these challenges.

Natasha Asar

Got it. Thank you. And then do you have any color on the customers?

Mark Tisdel

So, on the customers Natasha – we’ve talked about this historically. We don’t disclose number of net new customers in any particular quarter. We did highlight in the previous quarter because it was a record number of customers. Ed in his earlier comments did discuss a couple of the new customers we added, but we do not plan on addressing net new customers on the quarterly basis.

Natasha Asar

Got it. Great. Thank you.


Our final question comes from Eric Limus of Raymond James.

Eric Limus

Hey, guys. Thanks for taking the question. Ed you spoke about this earlier talking about on the high-tech side that the kind of consolidation affecting the business in sales cycle there, but can you have us a little bit color on where those sales cycle stand at this point? Are they still in the pipeline? Are you actually seeing some customers turn because of this instance? And then secondarily, you’ve dealt with in a life sciences space, consolidation in that area, is it just more so pronounced in the high-tech space versus life sciences?

Edward Sander

Sure Eric, great question and really good speak with you today. So look I want to make one really clear statements. The demand in the market remains so any kind of questions about whether or not this demand is changed or is evaporated or any kind of significant transition has happened, you could really just put those aside, but demand is there and we see it in our pipeline and it’s strong.

In terms of what specifically happened within the high-tech segment, Eric I’m sure you can imagine that any time that there is consolidation or M&A, companies often have some pretty significant questions that they’re – they are mulling over as they try to bring massive organizations together.

So the importance of our solution hasn’t changed in that equation, but they did have an impact and they pushed some of the sales cycles. This is why I mentioned when I was making the comments, a recent customer visit was one CIO at a local semiconductor here on the Peninsula. When he talked about the strategic importance of our solution set and they had gone through an M&A events earlier last year.

Throughout that entire period the importance of our solution remain the strategic importance and contribution that it made to the Company certainly is at the top of his radar as well as his CEO’s. So we don’t see the demand changing, it was impacted by the consolidation, but we’re looking forward to the contributions of the high-tech segment will continue to make the Model N.

Eric Limus

Okay. Great that’s a really good color. Mark we’re several quarters out now from the Analyst Day that we had – now looking at the long-term model or I guess the fiscal 2018 model. Do you think these issued that you’ve had this quarter I guess the past couple of quarters. Did that change your thoughts on operating margin target that you set forth for fiscal year 2018?

Mark Tisdel

Hey, Eric thank you very much for the call. As I indicated earlier to Chad question we are still very early in the planning cycle for fiscal year 2017 and we are not actually providing guidance on 2017 until our Q4 call. When we do have our Analyst Day in November then we will do an update if necessary for fiscal year 2018.

Eric Limus

Okay great. Thanks guys.

End of Q&A


[Operator Instructions] If there are no further questions at this time, I’d like to turn the call back to Ed Sander for closing remarks.

Edward Sander

So look I want to thank everyone for joining us today. We look forward to speaking with you in the coming days and weeks ahead and wherever you are have a good afternoon and a good evening. Thank you.


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

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