Model N, Inc. (MODN) CEO Jason Blessing on Q4 2021 Results - Earnings Call Transcript

Nov. 09, 2021 9:02 PM ETModel N, Inc. (MODN)
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Model N, Inc. (NYSE:MODN) Q4 2021 Earnings Conference Call November 9, 2021 5:00 PM ET

Company Participants

Carolyn Bass - Market Street Partners

Jason Blessing - President, CEO & Director

John Ederer - CFO

Conference Call Participants

Matthew VanVliet - BTIG

Chad Bennett - Craig-Hallum

Alexander Henderson - Needham & Company

Maya Kilcullen - JPMorgan Chase & Co.

Joseph Vruwink - Robert W. Baird & Co.

Brian Peterson - Raymond James & Associates

Joseph Meares - Truist Securities

Operator

Good afternoon, and welcome to Model N's Fourth Quarter and Fiscal Year End 2021 Earnings Conference Call. [Operator Instructions]. Please note, this conference is being recorded. With that, I would like to turn the call over to Carolyn Bass, Investor Relations.

Carolyn Bass

Good afternoon. Welcome to Model N's fourth quarter and fiscal 2021 year-end earnings call. This is Carolyn Bass, Investor Relations for Model N.

With me on the call today are Jason Blessing, Model N's Chief Executive Officer; John Ederer, Chief Financial Officer; and Cathy Lewis, Chief Accounting Officer. Our earnings press release was issued at the close of market and is posted on our website. The primary purpose of today's call is to provide you with information regarding our fourth quarter and fiscal year 2021 performance, and offer a financial outlook for our first quarter and fiscal year ending September 30, 2020.

The commentary made on this call may include forward-looking statements. These forward-looking statements are based on management's current views and expectations as of today and should not be relied upon as representing our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. Actual results may differ materially. Please refer to the risk factors in our most recent Form 10-Q filed with the SEC.

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 non-GAAP metrics to the nearest GAAP metrics are included in the earnings press release issued today, which is available on our website. I encourage you to visit our IR website at investor.modeln.com to access our fourth quarter and fiscal year 2021 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 fiscal year 2020 results.

And with that, let me turn the call over to Jason.

Jason Blessing

Thank you, Carolyn, and welcome to our call today. I am pleased to report that our fourth quarter results beat expectations on total revenue, subscription revenue and adjusted EBITDA. Our Q4 punctuates the end to a strong 2021 for Model N, and I'm very proud of how our team is executing.

Transitioning from an on-premise to a SaaS business model as a public company is not an easy or quick process. But we are in good company with many others who have successfully made the transition, which resulted in stronger more sustainable business models. As I reflect on 2021, I am pleased with our overall execution and the progress we've made with our growth levers.

Part of transitioning to a SaaS business model involves taking care of our customers and moving them forward with us. And last year, we made significant progress on this front. As of the end of 2021, we have transitioned approximately half of our on-premise customers to the cloud. As I have talked about on previous calls, our transition methodology is finally tuned and the cost and time to move customers to the cloud continues to decrease, and quality has been excellent. We also still have a significant amount of future incremental ARR associated with moving customers to the cloud in front of us. Many of these remaining deals are with our larger customers, and we expect the impact on our financials to be positive, but potentially lumpy on a quarterly basis. The guidance that John will provide today contemplates closing a portion of these big deals in 2022, but also infuses some conservatism to give us room to work as it can be difficult to predict the precise quarter when these deals will close.

Given the success we are having with SaaS transitions, we are also starting to see our maintenance decline at an accelerating rate compared to recent levels. Again, John will provide insight into this when he gives our annual guidance in a moment. In addition to successful SaaS transitions, overall sales velocity continued to accelerate during 2021, due in part to the changes we've made over the last 3 years to our selling motions, most notably, building out dedicated customer and new logo sales teams.

In 2021, we closed 34% more total deals versus the prior year and the number of new logos signed grew by 44% over 2020. I also continue to be pleased with the progress we are making integrating the Deloitte acquisition, which we have rebranded business services. This business significantly expands our total addressable market, enabling us to sell to companies from pre-revenue up to the largest in the world that prefer to buy an integrated software and services revenue management solution. We have already seen our M&A thesis play out with key wins at Mayne Pharma, MorphoSys, and in Q4 with Caraco and an existing customer who has been using Model N in their European division for many years. The latter is a great example of our ability to realize revenue synergies and by cross-selling business services into our core Model N customer base.

In addition to revenue synergies, we've also improved the overall profitability of this business significantly in the first year. I would also like to call out the continued strong performance of our professional services team, which is delivering strong financial results and high-quality projects. This team had a remarkable 2021 and has built a strong backlog for 2022. I'd like to address one final high-level point before moving on to Q4 highlights. We have heard consistent feedback from investors that they would like more specificity on the progress we are making on our SaaS transition. We recognize that this progress is not always obvious in our quarterly GAAP results. In addition to the SaaS transition progress metrics that I already provided, I would also like to share some additional metrics that we feel illustrate the progress we are making as we reinvent Model N.

First, one of the key drivers to our subscription growth has been the fact that Model N provides a high ROI mission-critical solution, which results in very strong renewal rates. Our SaaS subscription gross retention rates are best-in-class at above 95%. And during the 12 months ended September 30, 2021, our net dollar retention rate was 118%. We expect software subscription gross retention to continue to be 95% plus and net dollar retention to be in excess of 110%. These retention numbers show that we are building a durable SaaS business.

And finally, today, we are introducing more specificity on the growth of our SaaS business something that has been difficult for investors to understand, given the other components included in our recurring subscription revenue line, such as maintenance and term licenses. For 2022, we are targeting to exit the year with SaaS revenue growing at 20%, and we expect this to accelerate in 2023 due to the progress we are making on our key growth levers. I hope this additional commentary helps investors better understand the progress we are making as we reinvent Model N.

Next, I'd like to give you an update on our recently completed quarter. Success in Q4 was driven by a healthy contribution from all growth levers. We signed multiple new logos, two SaaS transitions, numerous customer base expansions and we also enjoyed strong renewals across the board. And similar to last quarter, we closed a healthy amount of deals with solid contributions from both Life Sciences and High Tech.

Turning to SaaS transitions. During the quarter, we signed EMD Serono and Alkermes. EMD Serono is a terrific case study of why customers are moving to our cloud. This customer was running an older version of our software and was concerned about the risks associated with having a mission-critical product on an aging on-premise infrastructure. Model N's Revenue Cloud will ensure that EMD is always current and has access to our latest innovation to address the dynamic regulations that are a reality in Life Sciences. In recent quarters, we've talked about a strong pipeline and an increase in sales activity, and it's encouraging this quarter to see that trend continue and result in a high number of closed deals. As I mentioned earlier, we are seeing nice synergies as we've integrated the acquired Deloitte Business Services Group into our sales and delivery teams. As we've said previously, the addition of this offering opens up our TAM by helping us to land new logos as well as expand our relationships with existing customers.

A great example of this is the customer that I mentioned earlier that has been using Model N in Europe for many years and will now subscribe to business services to support their U.S. operations. Also during the quarter, Fresenius Kabi, a global top 25 pharma and med tech company, successfully completed a SaaS transition to support their U.S. operations. This project is significant because the customer retired several legacy on-premise customizations, adopted new Model N functionality and reduce their overall cost. After moving to the cloud and taking advantage of our elastic compute capabilities, the customer is reporting that certain processes that took 15 hours to complete are now taking minutes. I recently heard from Fresenius' executive sponsor, and he couldn't be happier with the implementation and the value that Model N's cloud solutions are delivering to his team.

Turning to High Tech. We continue to see improved traction in this part of the business. During the quarter, our sales team signed 2 new logos, including Cricut and Ergotron. Cricut is a $1 billion global manufacturer of computer-controlled cutting machines and scanners for the consumer market. Cricut is starting their model and journey by implementing channel data management in their international division. One of the key decision makers at Cricut is a prior Model N customer, and based on his favorable experience with us, he selected us again. We always love to see repeat customers.

We also continue to see our land and expand strategy pay dividends. During the quarter, we had numerous upsells within our High Tech business, including AMD, Micron, Seagate and Targus. Targus is a terrific example of how our land and expand sales motion sets us up for additional expansion opportunities in the future. Our initial deal with Targus closed in Q2 2021. They went live in early Q3 and expanded their use of channel data management in Q4. Customer case studies like Targus showcase the new Model N and the rapid time to value that our customers see from our products.

Turning to professional services. Our team had another great quarter to cap off a fantastic year. In Q4, we had several successful go-lives, including key projects at Regeneron, Seqirus, Western Digital and Crestron. We also had one of the world's largest med tech companies, which we announced as a new logo in Q2 2021, go live on our Global Tender Management product in Europe. Our services team continues to deliver on-time, on-budget and at best-in-class margins. As I mentioned earlier, I also expect strength to continue in our services business as the team has built a substantial backlog as we head into 2022.

Turning to product. Our team continues to deliver, and I would like to highlight an important new product that we are working on closely with a group of our largest Life Sciences customers. Specifically, we are in the final stages of rolling out a new state drug pricing transparency management solution.

In the last few years, over 20 states, and this list is growing, have enacted new drug price transparency laws that are starting to take effect. These laws require manufacturers to report information about any new drug launch or price changes along with the justification or the change. Due to the complexity of the requirements by each state, drug manufacturers are looking for efficient ways to manage this process and stay compliant.

Given our trusted adviser status and deep domain expertise, Model N is a natural partner to work with our customers to simplify this complexity. To address the need, we have developed a new solution that we feel will help our customers navigate this new legislation and help them to remain compliant.

And finally, we are excited that IDC recognized our High Tech product suite in their recently published MarketScape,. Specifically, IDC named Model N as a worldwide leader in price optimization and management applications in their 2021 Vendor Assessment. According to the IDC MarketScape, Model N provides users with granular control of pricing for high-tech use cases, along with strong channel management capabilities for things such as market development funds, rebates, win probability and other incentives. Customers highly rated Model N and described our products as being built for their future due to Model N's comprehensive high-tech industry-specific features. We are very proud of our high-tech solutions and how we fared during the rigorous evaluation from IDC. I also love the customer recognition and the quote that Model N is built for their future. This outside praise is the ultimate endorsement of the value we provide to our customers.

I'd like to close by saying that I'm pleased with our execution in 2021 and that I'm excited about the year ahead. Our maniacal focus on our growth levers of SaaS transitions, customer expansions and new logos is paying off. And as I noted earlier, we still have significant runway in all of our growth levers which makes me optimistic about the road ahead.

I'd now like to turn the call over to John to discuss our Q4 financial results and provide an update on our guidance. John?

John Ederer

Thank you, Jason, and good afternoon to everyone on the call today. As Jason noted, we closed out our year on a high note, exceeding our targets for revenue and profitability. Total revenue upside was driven by subscription revenue as organic growth improved in the fourth quarter. We also had steady improvement on subscription gross margin and continued strong operating expense controls in Q4, which drove the overperformance on adjusted EBITDA and earnings per share. A big contributor to our improved profitability compared to our guidance has been the successful integration of the Business Services group, which was two quarters ahead of plan.

In summary, while we're still navigating the migration of our business model, we are executing well and back on a profitable growth path. Now looking at our specific results for the fourth quarter, total revenue grew 24% to $51.5 million, including $6 million of revenue from Business Services, and this exceeded the top end of our guidance. Subscription revenue grew 29% to $38.2 million, including the addition of Business Services. And finally, professional services revenue grew by 13% year-over-year to $13.3 million.

Turning to profitability for the fourth quarter. Non-GAAP gross profit was $31.7 million or a gross margin of 62%. While gross margin was down slightly versus Q4 last year due to the addition of Business Services, we have seen steady sequential improvement this year from 57% in Q2 to 60% in Q3 and now 62% in Q4. Non-GAAP gross margin for subscription revenue was 70% in Q4, which also was down versus Q4 last year due to Business Services, but up sequentially from 68% in Q3. On an organic basis, the non-GAAP subscription gross margin for core Model N was slightly above Q4 last year and remains in the mid-70% range.

Non-GAAP gross margin for professional services revenue was 39% versus 37% in Q4 last year as this team continues to execute very well. And operating expenses for Q4 were lower than expected due to the timing of some hiring and other investments. As a result, adjusted EBITDA for the quarter was $7.9 million, representing growth of 14% year-over-year, and well ahead of the high end of our guidance of $5.5 million. Adjusted EBITDA margin was 15% for Q4, which is the second quarter in a row that it has been back in the mid-teens range, and largely reflects the successful integration of the Business Services acquisition. Finally, non-GAAP net income was $6.6 million or $0.18 per share versus the high end of our guidance of $0.11 per share.

On an annual basis for our fiscal year ending September 30, 2021, total revenue was $193 million for the year, up 20% year-over-year driven by subscription revenue of $142 million, which was up 23%, and professional services revenue of $51 million, up 14%. Adjusted EBITDA was $26 million for the year, which was up 22% versus last year, and represented a margin of 13%.

Looking at the balance sheet and cash flow. We ended the quarter with $165.5 million of cash and equivalents, which was up $11.7 million from the end of June. Cash flow from operations during Q4 was $9.9 million, up from $7.2 million in Q4 last year. And current deferred revenue was $57.4 million, up $3.8 million sequentially from the end of June and up 13% on a year-over-year basis.

In terms of RPO, or remaining performance obligations, the total balance was $220.7 million, representing an increase of 34% year-over-year. Current RPO totaled $107.3 million, an increase of 22% year-over-year. While RPO metrics may fluctuate on a quarterly basis due to contract lengths or the timing of renewals, overall, we have seen strong growth in RPO, which provides better visibility on our future revenue.

As we look ahead to fiscal year 2022, there are a few key trends to focus on as we continue to transition the business. First, SaaS transitions for our larger customers are accelerating, which is good news overall for the business, but it is important to understand how these will impact the model. We are starting to see some seasonal patterns for these deals that correlate to the budget cycles of our customers. And as a result, we anticipate the associated revenue to occur during the second half of our fiscal year, which is similar to what we experienced last year.

Second, the increase in SaaS transitions is starting to put pressure on maintenance revenue, but we expect quarterly declines in maintenance to accelerate starting in the second quarter. Last year, maintenance revenue declined in the mid- to high single-digit rates, and we expect this to increase to the low to mid-double digits this year. Third, offsetting the declines in maintenance revenue is the continued growth of our SaaS revenue. While we are still dealing with the cross currents in our overall subscription revenue for FY '22, the SaaS portion is now the majority of our subscription revenue and will be the key driver of our business going forward.

To help you understand the dynamics of our SaaS business, we will provide metrics for SaaS annual recurring revenue, or ARR, and SaaS net retention. SaaS ARR represents the annualized value of our daily SaaS subscription revenue for the most recent quarter. We finished FY '21 with $83.8 million in SaaS ARR, which was up 23% on a year-over-year basis. In terms of net retention related to our SaaS business, we finished the year at 118%. While we might see some fluctuations in these metrics in any given quarter, we have typically seen net dollar retention in excess of 110%, and we are targeting to exit FY '22 with SaaS ARR growth at 20%.

In terms of our specific guidance for FY '22, in the first fiscal quarter, we expect total revenue to be in the range of $49.5 million to $50 million; subscription revenue to be in the range of $37 million to $37.5 million; adjusted EBITDA to be in the range of $4.5 million to $5 million; and non-GAAP EPS to be in the range of $0.08 to $0.09 per share based on a fully diluted share count of approximately 36.8 million shares. For the full year of fiscal 2022, we expect total revenue in the range of $211 million to $214 million, representing 10% year-over-year growth at the midpoint of the range; subscription revenue in the range of $152 million to $155 million; adjusted EBITDA in the range of $23 million to $25 million, which reflects an 11% margin at the midpoint of the range; and non-GAAP EPS in the range of $0.44 to $0.49 per share based on a fully diluted share count of approximately in 37.3 million shares.

Finally, an additional bit of clarity for the second quarter of FY '22 as you build your models. While we won't provide specific guidance for Q2 today, we do expect subscription revenue to decline sequentially from Q1, primarily due to a decline in maintenance revenue and the result of 2 existing Model N customers who have merged and are integrating their contracts with us.

The second quarter is also expected to be higher from an expense standpoint due to seasonal increases in employee benefits. As a result, Q2 is expected to be the low watermark from a profitability standpoint, with both revenue growth and adjusted EBITDA margin accelerating over the second half of the year.

In summary, we are committed to driving profitable growth, even as we transition our largest customers to the cloud. Helping these customers make the migration to our cloud platform does require investment across many elements of our business, but we are managing this process in a responsible way to ensure a smooth transition for our customers and a balanced approach for our shareholders. These investments will ultimately drive higher growth in future years as SaaS revenue becomes an even greater proportion of the business.

With that, I'll turn the call back over to the operator for any questions that you might have.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from the line of Matt VanVliet with BTIG.

Matthew VanVliet

Nice job on the quarter. I guess starting off on a bunch of the SaaS metrics that you did update, and thanks for that, Jason. I guess when you look at now that you have over 50% of your customers in some capacity on the SaaS platform, and you've done a number of transitions wonder if we could get an update in terms of what the average uplift is from that maintenance recurring stream into the SaaS payments. And then as you look at the other, call it, 50% or a little less than that, that are still to transition you highlighted that a number of them are some of your largest customers. Should we expect that uplift to be quite to the level you've seen so far? Or will the sheer volume and size of those customers potentially push that down just slightly.

Jason Blessing

Matt, it's Jason. I'll take that question. So yes, first of all, just to be specific on some of the SaaS progress metrics that we cited. We've transitioned 50% of our on-premise commerce to the cloud. We have a broader footprint of customers actually using cloud products because we do have some hybrid deployments out there. So -- Just to be clear, 50% of on-premise implementations have transitioned as of the end of fiscal '21.

And in terms of the uplift, we've kind of talked about 2.5% to 3.5% as being the ZIP code. And I think that's generally held pretty true as we've gone through this first cohort, roughly half of our customers, which does include some of the larger customers. I do think though, generally speaking, larger customers have broader deployments and do negotiate better pricing because of the broader footprints that they have a Model N. And I do also want to clarify that, yes, it's over half. It's significantly more than half of the ARR benefit that we've talked about of moving customers to the cloud is still in front of us because so many of these customers that remain that we see transitioning this year and next are some of our largest customers.

Matthew VanVliet

All right. Very helpful. And then on the new product that you're -- the state drug transparency product that you're preparing to launch how much of kind of a broad module-based pricing do you expect that to be? Or is it a smaller add-on I guess, maybe what might be comparable to across the rest of the platform in terms of overall scope of possibility if you were able to cross-sell that within your entire customer base that has a U.S. business?

Jason Blessing

Yes. Great question, Matt. So first of all, we're super excited about this opportunity, and I think it really represents the value of Model N and the relationship as a trusted adviser we have with our customers to step right in and help address some of these changes, the regulatory changes that come up. The best way to think about this is it is a subscription-based product as with any of our subscription-based product. products, customers will get benefits from bundling and so forth. And this one, I would kind of characterize it as a midsized opportunity in terms of the product portfolio of products that we have in terms of add-on capabilities. It is also something that is practically needed by almost all of the companies that are selling, as you point out, in the U.S., in the states that are enacting these new laws. So we see it as a very interesting opportunity for us, and we have in our guidance kind of contemplated the effect that we see this having on the business this year. but do think it's a very exciting opportunity over the next couple of years, particularly as more states adopt these pricing transparency laws.

Matthew VanVliet

And then maybe just one clarification, John. On the guidance for '22. Can you just remind us or help us remember if there's anything from the ramp contracts that you have sold for SaaS transitions that is either sort of outsized in '22 or maybe conversely will have a much smaller impact on 22 reported revenue versus that ARR growth.

John Ederer

Yes. Sure. So with regards to the ramp deals in '22, to some extent, they're a nonfactor. There's still an element there that depressed the overall revenue. But when you compare to FY '21, it doesn't have as much of an impact from a growth rate perspective. where we would start to expect to see a tailwind from the ramp transactions is really more out in '23 as some of these first deals start to renew.

Operator

And our next question comes from the line of Chad Bennett with Craig Hallum.

Chad Bennett

So just a few questions around the net expansion metric that you've given the last couple of quarters, and it looked pretty strong this quarter at 118% on a trailing basis. So if we think about that a couple of different ways -- and I don't want to get too into the details. But if we look at kind of your Life Sciences customer base and the net expansion there and we think about it from a kind of a net new addition cloud SaaS addition versus a conversion, would the net expansion metrics look any different between those two kind of cohorts of customers?

Jason Blessing

Yes. This is Jason. Thanks for the question. Let me just make sure I understand. So our use is -- the question is net dollar retention stronger with our cloud customers versus on-premise customers.

Chad Bennett

No. So if I'm thinking about a cloud customer that converted, right, from maintenance and what their net expansion rate has looked like in the last 12 months versus a customer you added just net new logo in the cloud in the Life Sciences business 12 months ago, and how they expanded over the year.

Jason Blessing

Yes, I got it. I understand. Great question. So -- As we've talked about on past calls, SaaS transitions have increasingly proved to be a catalyst for cross-sell and upsell. And there's a variety of different things that we can do. We can sell enhanced levels of service. which is baked into our recurring revenue. Oftentimes, when we do a SaaS transition, we're able to position new modules as well as part of the benefit of moving to the cloud. And then we also have seen examples where we're taking a footprint in one company and more broadly -- or excuse me, in one division and more broadly deploying inside of the company.

And so when you look at the totality of the cross-sell and upsell that's been attached to these SaaS transitions, it's been pretty robust. Not to say that some of the new logos that have expanded aren't robust they just -- they follow a slightly different path because they become a customer, they have a product, they go live on a project, they stabilize and then they come back and buy more. So it's just been a little bit of a different buying pattern. But again, just increasingly, we're seeing SaaS transitions as a catalyst to broaden the footprint in these accounts.

Chad Bennett

Got it. Good color. And then just in terms of -- and it's good -- obviously, you have a target out there for net expansion going forward. But just curious if there's something just I don't know, you addressed the deal ramp question with the answer with the last question. But why would we decelerate potentially from 118% to -- I know you're targeting to 110%, but want to do better. But -- Is there something going on? You talked about seasonality in the first half in migrations, but I don't know that, that impacts that expansion number necessarily. Why would it decelerate from 118%?

John Ederer

Yes. This is John, and thanks for the question. I guess, I would actually look at it a little bit differently. And so when we look historically at where this number has been and it's been typically in the 110% to 115% range, so this quarter, of course, we're a little bit above that range at 118%. But it has been consistent. It does move around a little bit from quarter-to-quarter, which I think is normal. And so I don't necessarily think about it as decelerating other than being in the range. And I think that's consistently where we've been and what we would expect to see going forward.

Chad Bennett

Okay. And then -- and I was hopping between calls. So if you addressed this, John, I apologize. But did you speak to gross margins in fiscal year '22 and specifically, the two revenue segments, and how they at least directionally go from where you exited '21?

John Ederer

We did not speak specifically to gross margins. And I think you can see the recent performance, and I would use that as an indicator for FY '22. I would also pay attention to the revenue mix that's included in our guidance. as you look at the total gross margin for the company.

Operator

Our next question comes from the line of Ryan MacDonald with Needham & Company.

Alexander Henderson

This is Alex on for Ryan. Could you give us an update on the J&J migration is processing? And also, what would be the impact on the pipeline from that notable migration?

Jason Blessing

So the J&J project, as we've talked about in the past, is kind of a 3-phase journey with J&J. The first was J&J Japan, which we signed and went live last year. We're in the thick of it right now with one of their divisions, their med tech division, and working through a bunch of different architecture and implementation issues and then we still have their pharma division out there. as well. So that's a big multiyear program, and we're right in the middle of it right now.

Alexander Henderson

Great. And then also, you were cited as a leader in the market space for BD pricing optimization and management applications. How are you able to leverage that from a go-to-market perspective?

Jason Blessing

Yes, it's a great question. So the IDC market scape that recently came out, we fared very favorably there. And there's a couple of things that stick out. First of all, customers still turn to these third-party analysts to whittle down their list of who they're going to invite to RFPs and buying processes. So it really helps us there.

The thing, though, that I think was really interesting about that report is there were some customer feedback in there that said Model N is built for our future. And one, I thought that was a pretty cool quote. And then to the went on to talk about how Model N is not just a generic pricing and channel management solution. They talked about it being built specifically for High Tech, which I think really reinforces our value as a vertical software company and not trying to be all things to all people, but trying to be very good in a couple of focused verticals.

Operator

Our next question comes from the line of Jackson with JPMorgan.

Maya Kilcullen

This is Maya Kilcullen on for Jackson. I just wanted to know if anything has changed since you gave the kind of preliminary commentary on '22 last quarter?

Jason Blessing

Well, I suppose we've reported a fourth quarter. But other than that, no, I would say that our guidance is consistent with the comments that we made last quarter. I would note that the comments we made were based on the consensus estimates at the time for FY '22. And I believe that our guidance is still in line with the comments we made last call.

Maya Kilcullen

Okay. And then just as a follow-up. So just wanted to maybe talk about the strength in the SaaS transition. I think last quarter, you announced maybe 4, this quarter was 2. So just is that more to do with kind of the seasonality you mentioned earlier with the customer business cycles, or maybe what was the reason for the change there?

Jason Blessing

Yes, it's a great question, if you widen the aperture and look back over the last couple of years as an example, you will see that number fluctuate quarter-to-quarter from 12 to 4 to 5. And there is some seasonality perhaps emerging in the business in that -- and I think it's a good thing, by the way, it seems like more customers took vacations this summer and we're kind of returning to seasonality as we've known it in enterprise software over the last 20, 30 years. So little bit of seasonality in there, but I wouldn't lock in too much on the absolute number quarter-to-quarter. It's more of a statistic that you have to evaluate over a multi-quarter period. and it was up year-over-year. The amount of SaaS transitions announced last year -- excuse me, this year, was up sequentially over last year.

Operator

[Operator Instructions]. And the next person we have in line would be Joe Vruwink with Baird.

Joseph Vruwink

I'll just step back a bit because getting the communication that transitions are accelerating and you're seeing it in your maintenance revenues start to decline at a faster pace. I mean, these are somewhat seminal events in the broader context of SaaS transitions. And so I'll ask, why is this happening here now entering your fiscal '22, the transition ARC has been a number of years in the making? Maybe you could just speak to what customers are thinking about maybe there, it's a function of comfort levels or maybe a specific thing is, Model N has done from learnings over the years that are just positioning the company in a better spot?

Jason Blessing

Yes, Joe, I appreciate the question. And I would agree with you seeing maintenance start to decline in a SaaS transition story is a seminal event. So thank you for pointing that out. I totally agree. I think it's a combination of factors. As we got through last year, we started to see more and more large customers either start transitions or express interest in starting a transition this year. And the reason that customers are getting more comfortable is, one, they're able to now look at a couple of dozen transitions and see that they've been successfully completed. They're seeing those customers adopt new innovation. They're seeing those customers take updates, particularly regulatory updates more quickly. And so I would characterize it as there's just a growing sense of comfort in the base that we have this figured out.

And so as I said, as we exited last year and started to knock down some of these big deals, and then really started to look at the implications on maintenance this year as well as look at some of the deals that are likely to close this year. That's what led us to update our guidance on maintenance and indicate that we are at that important tipping point.

Joseph Vruwink

And just on the last point about deals closing in fiscal '22. Is it possible to characterize how much of the guidance you're providing today is dependent on executing on those new opportunities as opposed to, I suppose, what you already have visibility on as a function of normal renewals coming up and visibility as a function of ramp contracts from prior years?

Jason Blessing

Yes, Joe, I won't be able to give you specifics on the call today, but I'll describe it a little bit for you in terms of the increased visibility that we're seeing. As we look at the business as more and more transitions to recurring and specifically the SaaS side of it, we do have quite a bit more visibility in terms of the out-year. I guess, one metric I could point you to actually is the RPO. And so if you look at how our RPO has been trending, particularly the current RPO. That has increased as a percent of our forward revenue over the last couple of years. A couple of years ago, it was probably about 50% of our forward revenue. I think exiting FY '21, if you do the math and look at the midpoint of our guidance range, you'll see it's about 70% of that subscription revenue. And so we're feeling more confident in terms of the overall visibility that we've got on the business.

Joseph Vruwink

Great. And then just a quick final one. Can you say where maintenance revenues finished the year in 4Q?

John Ederer

Yes. So I do appreciate the question, and we're not going to talk specifically about the dollar value of the maintenance. We don't want to get into a situation of starting to break out all of the different elements of our subscription revenue line. And we did want to provide a little bit of an indication in terms of what's happening to it from a growth rate perspective. But increasingly, as we look forward at the business, the key driver is going to be that SaaS revenue, which is why we're providing the SaaS ARR metric as well as the retention that goes hand in hand with it. And so you can have a little bit more insight into what the key driver is for that line while some of the other items, we'll do what they're going to do over the course of the next few years.

Operator

Our next question comes from the line of Brian Peterson with Raymond James.

Brian Peterson

This is Jessica on for Brian Pearson. I just have one thing. On following up on a trend that we've seen of High Tech coming back recently, especially in terms of a mix of new bookings, is another strong quarter of Q4. I know that pre-pandemic, High Tech was a strong growing part of the business. But can you talk about demand indicators or pipeline build currently that you're seeing from a market today that shows how we're going back to pre-pandemic levels?

Jason Blessing

Yes. Thanks, Jessica. And if you don't mind, I'll broaden that question to include both Life Sciences and High Tech. So as we've talked about over the last 1.5 years, during the pandemic Life Sciences has continued to be very robust. And I don't know that we're quite back to pre-pandemic levels, but certainly in Life Sciences, it really does feel like we're fairly close to that. A lot of our customers are back in the office. We're going to visit customers again. And that vertical seems very robust as we head into our '21 -- excuse me, fiscal '22.

And then, yes, High Tech continues to improve. And as we've discussed in the past, we've really focused during the pandemic on existing customers, where we already are a well-known partner and look for opportunities to expand there. And as we've reported in our results, that strategy, I think, has paid off quite well as we've enjoyed several cross-sells and upsells in the High Tech base.

And then as you've seen in the last couple of quarters, we've now started announcing new customers again in High Tech. So I think it's a vertical that just in general, has started to recover from the pandemic as you see in the business news every day, it's also a -- it's a vertical -- the part of the vertical that we service is also one that's having incredible demand based on all of the different global macroeconomic factors and they are starting to invest again in solutions like Model N that help them automate and address some of these demand issues. So yes, High Tech is also coming back, and we feel good about both verticals as we head into 2022.

Operator

And it looks like we have time for one more analyst with -- from the line of Terrell Tillman from Truist.

Joseph Meares

This is Joe Meares on for Terry. If you guys could just comment on how your sales capacity is right now? Where are you currently hiring? And how sales force retention has been over the last quarter?

Jason Blessing

Yes. So great question. So we've invested a lot in sales over the last couple of years as we built out dedicated teams to go after new logos, sell into the customer base. We've built out a customer success team. We've invested in additional sales leadership as well as building out a world-class sales ops function. So the last couple of years, we've really been about building the foundation and starting to build on top of that foundation. And so we come into this year with great sales capacity, a great team that's ready for this year.

And in terms of the hiring we're doing, I would describe it as just continuing to build on this foundation and a little bit of a splash on the Life Sciences customer base, given the huge opportunity that exists there, potentially a little additional hiring in our customer success group. Those are the two kind of focused areas where we're hiring, but it is really built on top of the great foundation that we've built. And then in terms of retention, we have fared well there relative to some of the things that you read in the market. Model N is known as a great place to work. And generally speaking, knock on wood, we've had pretty good retention throughout the pandemic and even up to today.

Joseph Meares

That's good to hear. And just as a follow-up real quick. Within Life Sciences, the verticals of pharma, med tech and biotech I guess of those 3, where do you see the biggest white space opportunity into 2022?

Jason Blessing

Well, with pharma and biotech kind of being the heritage of the company and all of the large customers we have, there's a huge amount of white space there, selling into other divisions, selling new products and expanding to Europe. So I would characterize that one as more of the near-term opportunity, sizable near-term opportunity. And then med tech is an area that we've been investing in to go after. We announced the Deal Management solution that we've built earlier year that is purpose-built for med tech, and that makes us more competitive and more value-add in med tech.

And so I do view medtech longer term as an interesting growth opportunity for us. And we've already got some great lighthouse accounts based on top 10 pharma. Many of them are pharma and medtech customers. So some of our medtech capabilities we've built out in partnership with them. And I think that presents a mid- to longer-term growth opportunity that we're really excited about.

Operator

And we have reached the end of the question-and-answer session, and I'll now turn the call over to CEO, Jason Blessing, for closing remarks.

Jason Blessing

Thank you, operator, and thank you, everyone, for joining us today. We look forward to seeing you throughout the quarter and throughout the year and updating you on the progress of Model N. So thanks again, and have a great evening.

Operator

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

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