Q1 2021 Model N Inc Earnings Call
Greetings and welcome to the model N first quarter 'twenty 'twenty One earnings conference call. At this time, all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
Should anyone require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Gwyn Lauber Investor Relations. Please go ahead.
Good afternoon, and welcome to the earnings call from model N first quarter fiscal year 'twenty 'twenty one.
Which ended on December 31st 'twenty 'twenty. This is gwyn Lauber model N director of Investor Relations and.
With me on the call today are Jason blessing Marlins, Chief Executive Officer.
John Ederer, Chief Financial Officer, moving Gayego, Vice President of F. P N a N I R and Cathy Lewis Chief Accounting Officer.
Our earnings press release was issued after the close of market and is posted on our website.
The primary purpose of todays call is to provide you with information regarding our first quarter fiscal year 'twenty 'twenty, one performance and.
And our financial outlook for our second quarter and full fiscal year 'twenty 'twenty one.
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.
We disclaim any obligation to update any forward looking statements or outlook.
Actual results may differ materially.
Please refer to the risk factors and our most recent form 10-Q filed with the SEC.
In addition, during today's call, we will discuss non-GAAP financial measures. Please.
These non-GAAP financial measures should be considered in addition to not as a substitute for or in isolation from GAAP results.
A reconciliation of the non-GAAP metrics to the nearest GAAP metrics 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 Day at model N Dotcom and <unk>.
And if our first quarter fiscal year 'twenty 'twenty, one press release periodic SEC reports and the webcast replay of this call.
Unless otherwise stated all financial comparisons in this call will be to our fiscal year 'twenty and 'twenty results.
With that let me turn the call over to Jason.
Thanks, Glenn and good afternoon, everyone. Thank you for joining us today.
I'm pleased to report that we started our fiscal year 2021 with results that exceeded expectations and delivered record total and subscription revenues.
This strategic focus on our key vertical markets continues to produce results that support our belief that a focused model N is the best model and for our customers employees and investors.
With our deep domain expertise and mission critical products, we are focused on developing innovative solutions that meet our customers' needs and on developing strategic relationships with them. So they can effectively deliver their life changing products to the world.
And supportive this ambition in Q1, we acquired delights pricing and contracting solutions business, which will allow us to better serve more customers in the life sciences market with a powerful combination of software and business services to meet this market's unique needs.
With this acquisition, we are beginning a new transformative chapter for model N, which I believe will be even better positioned for growth over the next several years.
Later in the call I'll share more about the strategic rationale of this acquisition and John will then provide updated guidance for fiscal year 'twenty and 'twenty one.
Before talking more about the acquisition I'd like to start by discussing our very strong organic performance in Q1, which included signing the largest deal in company history.
Total revenue subscription revenue services revenue adjusted EBITDA and non-GAAP EPS, all exceeded our guidance for the first quarter.
In addition, subscription revenue growth returned to double digits and margins improved across the board compared to the same period last year.
I am proud of these results because they demonstrate that the demand for our products and services remained strong.
Part of our Q1 success was the result of our maniacal focus, particularly on our largest customers, where we are working to expand our solution footprint and transition them to our SaaS offerings.
The Big 10, as we referred to them represents a group, but some of the largest life sciences companies and the world that depend on model N for their revenue management needs.
All of these companies are long time customers and many of them are looking to model and SaaS offerings to help them compete and this dynamic market.
Remain compliant with changing regulations and allow their employees to maintain productivity while working from home.
We have a focused team of solution experts and sales professionals working with our executive team and this elite group of customers The chart and accelerated path to our SaaS solutions.
I am very pleased with the progress that this group continues to make.
One of the lighthouse accounts in the Big 10 is Johnson and Johnson, one of our largest customers and the largest life Sciences company and the world.
As you May recall last quarter, we announced that J&J, Japan started a project to move to our revenue cloud.
Continuing with their cloud first strategy in Q1, J&J is U S. Pharma division elected to begin their transition to model N revenue cloud, which resulted in the largest deal and model N history.
This deal is also significant because it includes a new cutting edge model and product that we will partner with J&J to develop that will also be available to resell to other customers.
Increasingly we are seeing SaaS transitions act as a catalyst for cross sells and up sells and and select strategic situations and opportunities to partner with customers to build and entirely new products as they recommit to model N and for the next 10 years.
J&J farm and SaaS transition is also significant as remaining on premise customers will take comfort and following this industry leader and we will look to benefit from the new innovation, we are building and our cloud products.
We believe that we are uniquely positioned to partner with the largest pharma companies and the world as we move them to our SaaS solution and innovate together and the cloud.
And the success of our Big 10 program is truly a team effort and once again demonstrates what model and can do when we focus.
Also in the quarter, we added a leading U S biotechnology company as a new customer.
The new customers mission is to leverage science to bring life changing medicines to the world, which includes their COVID-19 antibody cocktail that has been and the news recently.
The customer determined that they needed a solution that will provide agility as they introduce new products and allowed them to adapt to new government regulations as they scale and deliver across multiple markets.
The customer felt that model N revenue cloud would not only deliver the solution that they need it today, but also offer a broader footprint that they could adopt over time.
During Q1, Bristol Myers Squibb went live with the first phase of our global model and project <unk>.
As part of its acquisition of Celgene and BMS needed a solution that would provide one centralized platform to improve operational efficiencies and allow for the visualization of pricing and real time.
In addition to upgrading their existing platform B M. S added new model N products, including global launch excellence and global pricing management analytics to improve their international pricing and compliance.
It was important to deliver the first phase of this project as it sets up the rest of the program for success and further adoption of model N.
This project is also a great example of how model and is benefiting from life Sciences, M&A and helping our customers integrate and realize their overall business cases for these important transactions.
Our professional services team also had another remarkable quarter and delivered a new record number of successful go lives.
It continues to Amaze me how tirelessly this team works to ensure that each project meets the customers' needs.
Despite working remotely our team continues to execute at a very high level and this past quarter delivered over 90% of our projects on time and on budget.
Customer success is one of the Linchpins of our go to market strategy and to maintaining high revenue retention rates.
Turning to high Tech Micron was one of several high Tech go lives during the quarter.
In Q1, this leader in memory and storage solutions went live on model and rebate management.
By adding the rebate solution micron will be able to automate numerous manual processes, improving the effectiveness of its channel programs and its partner engagement.
Last year as we do each year, we ran our formal long range planning process and we did an assessment of our market opportunities and looked at how model and can better serve life sciences companies and expand our total addressable market.
The acquisition of Deloitte and pricing and contracting solutions business is the first strategic move that we made as a result of our strategy work.
This deal is important for three key reasons.
First and foremost it significantly expands our total addressable market, enabling us to sell to companies from pre revenue up to some of the largest companies and the world that prefer to buy a software plus services revenue management solution.
The Deloitte solution and software designed to be sold with business services to help companies run their market access functions.
And the addition of business services and significant for us because it allows us to sell how customers of any size want to buy and it unlocks a sizable segment of the market that we were not accessing in the past.
Second we are getting great modern technology with this acquisition that will be used in future model and products.
We are also getting a new analytics product gross to net debt can be sold to all of our life sciences customers today.
Finally, this acquisition also brings us great new talent.
We're getting domain expertise, which is price and this complex market along with a great engineering team in.
In total we believe that the addition of the Deloitte business expands our total addressable market by approximately 40% and the scale of our combined team will allow us to better serve the life Sciences industry.
As we combine our two teams I also believe that we will be able to drive significant operational improvements by taking what was a subscale business within Deloitte and combining it with model N.
We have proven expertise driving operational efficiencies, having delivered notable improvements and model and adjusted EBITDA from negative 12 per cent to over plus 13% during the three years following the rabbit toss acquisition.
We have already identified several opportunities to drive cost synergies around things like application hosting as well as revenue synergies that should drive profitability back to pre acquisition levels in about four quarters.
We believe the short term hit to profitability is a worthwhile trade off to drive additional growth this year and and the future.
The strength and model and market position.
And to expand our total addressable market opportunity in such a meaningful way.
Finally, I believe the combination of our teams will result in a formidable company with more scale and talent that will allow us to better serve the industry and build the next chapter and model and growth story.
Now I'll turn the call over to John to discuss our Q1 financial results and provide updated guidance John.
Thank you Jason before I begin I'd like to take a minute to introduce myself to all of you and provide a little insight into what brought me and model N.
Join model N from K, two software a private equity backed company, where I served as CFO.
Prior to K, two I held financial leadership positions with various software companies, including mobile IR chip Coe software and SAP business objects and.
Actually started my career on the sell side and the research analysts covering health care and enterprise software and it's great to still see some familiar names on the call today.
Adjusted join model N because like many of you.
I believe that the company has an incredible opportunity and private <unk>.
And has long been an established leader and revenue management solutions for life Sciences, and high Tech companies and now have successfully navigated the transition to becoming a SaaS business.
And then a part of these types of transitions before and they can create a solid foundation for sustained growth and value creation.
Model N has also established a strong platform per acquisitions and with the addition of the pricing and contracting solutions business from Deloitte I believe that we have an opportunity to accelerate growth by expanding into new segments of the market.
Now looking at our results for the first quarter, we exceeded the guidance that we share with you on our call and demonstrated our ability to deliver profitable growth.
Several factors contributed to our strong performance in Q1, including the J&J deal strong utilization and our professional services business and good operating expense management.
Finally, as a reminder, the acquisition of the Deloitte business closed on December 31, So it had no impact on our income statement, but it was included on our consolidated balance sheet.
For the quarter total revenue grew 11% to $42 7 million subscription revenue grew 12% to $31 4 million and professional services revenue grew by 11% to $11 3 million.
Excluding maintenance revenue from the subscription line, our core subscription offerings grew by 19% to $20 8 million.
All of these results exceeded our expectations for the quarter with the over performance on subscription and driven in part by the J&J deal.
Turning to profitability non-GAAP gross profit for Q1 was $27 1 million per our gross margin of 63% versus 61% and Q1 last year non.
Non-GAAP gross margin per subscription revenue increased to 74% and Q1 versus 72% last year, while non-GAAP gross margin per professional services revenue was 34% versus 31% last year adjusted.
Adjusted EBITDA for the quarter was $7 5 million, representing a margin of 18%, which was up significantly from 13% and Q1 last year.
Finally, non-GAAP net income was $5 9 million or <unk> 16 per share versus on non-GAAP EPS guidance of five to eight assets again, the over performance on revenue and good cost management during the quarter drove the upside on earnings per share.
Moving to the balance sheet, we ended the quarter with $143 5 million of cash and equivalents our cash balance reflects the use of cash from the acquisition and relative to the same period last year very strong improvement on free cash flow, especially after excluding acquisition related expenses.
And now I'd like to provide new with guidance for the second quarter and update our guidance for fiscal year 2021.
This update reflects the acquired business from Deloitte, which will be fully integrated into the model and software and services offerings as.
As such we will not break out results from the acquisition going forward.
Also as a reminder, from our last call. Our outlook includes the impact of deal structures that may dampen our near term revenue recognition, but revenue will increase over the course of the contract period we.
We will continue to utilize this approach and special situations and the transaction with J&J was one such example.
And these steel structures can sometimes be a complex multi year transactions with multiple revenue elements and the linearity of our forecast could change accordingly.
And Q1, a portion of the J&J deal was recognized upfront while the vast majority of it will be spread over many years.
To give you a sense of the impact. This approach is having on our business I would encourage you to look at the balance of our remaining performance obligations, which grew by 32% versus Q1 last year.
Now specifically for the second quarter, we expect total revenue to be on the range of 46 to $46 5 million subscription revenue to be and the range of $34 $5 million to $35 million.
Non-GAAP operating income to be and a range of negative 600, thousands and negative 100000 and.
And non-GAAP EPS to be a loss of six cents to a loss of five.
Based on a fully diluted share count of approximately $35 3 million shares.
Finally, adjusted EBITDA is expected to be and a range of negative 500000 to breakeven.
For the full fiscal year, 'twenty and 'twenty, one we expect total revenue and the range of 184 to 186 million subscription revenue and the range of $136 million to $138 million.
Non-GAAP operating income and a range of nine five to $11 5 million and non-GAAP income per share and the range of 10 to 15.
Based on a fully diluted share count of $36 6 million shares also for the year adjusted EBITDA is expected to be and a range of $10 million to $12 million.
Finally to give you some additional color regarding the impact of the acquisition most of the incremental changes to our annual guidance are the result of the acquisition.
Additionally from a margin standpoint due to the mix of managed services revenue coming from the acquisition and as we make targeted investments we would expect a decline and overall gross margins for the second quarter and the balance of the year.
As Jason indicated earlier this is a highly strategic acquisition for us and expands our market opportunity, but the initial years essentially and investment and here, we have a high degree of confidence and good line of sight on the specific cross selling opportunities and cost synergies that will make this an accretive acquisition and fiscal year 2022.
And the team here has a strong track record of driving profitable growth.
Thank you for joining us today I'll now turn the call over to the operator for questions operator.
Thank you at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is and the question queue. You May press star two if he would like to remove your question from the queue.
For those using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
One moment please poll for questions.
The first question is from Chad Bennett from Craig Hallum. Please go ahead.
Great. Thanks for taking my call.
And I guess first just on the acquisition, maybe maybe a little more color. If you could share. So I think you indicated the majority of the the.
Outlook increase for the year was related to the acquisition.
You know just.
You know and turns it says I don't know.
Kind of how.
You know typically you know I think you would see some type of contribution.
Number I guess I would say from an acquisition when you make it maybe.
And maybe you wouldn't update that you know in future quarters, but is there any type of color you can give just on the annual run rate of the business and the relative mix of software versus services.
Yeah, Hey, Chad this is Jason and I'll Oh.
I'll start on that one so and our guidance. We did indicate that most of the change is attributable to this business and and this change is due to the nine month impact of the acquisition both.
Both with revenue and expense. So this does give you directionally some information on the size the.
And the other thing we're prepared to disclose just so you got a sense of of not only the size of revenue and expense, but it's.
This business at about 60 customers coming over so you can get a sense that you know the deal size and the revenue run rate per customer.
As you know.
As interesting and.
This business does have customers that are everywhere from pre revenue up to top 20 pharma customers that just prefer to buy software plus services and all of the software and services that this business delivers are through recurring revenue arrangements.
Okay. So the.
Just from from European L standpoint, truths and will all the revenue flow through your subscription line or will there be some and professional services from the from the acquisition.
Yes, thanks for asking that clarification, Chad the vast majority of it does flow through subscription, but there is a there are small professional services projects to get customers live and those tend to be anywhere from six to nine months.
Got it perfect and then maybe one one or two follow ups on just the the organic business.
Jason and I mean, it sounds like you know the bookings picked up actually.
I signed a very large deal or a monster deal with J&J and the quarter.
And it seems like high Tech you sided micra and go live and and other high.
Hi Tech go lives can you just characterize relative to three months ago, you know the high tech pipeline and business activity. There if that in fact has improved and then just you know from a you know.
Thank you called them, the big 10, or even beyond that.
Your relative sense of of both from a conversion and cloud adoption standpoint.
If we're seeing another step our acceleration on the life Sciences side.
Sure. So on Hy Tech I would say, it's steady as she goes as we've discussed since the pandemic started we've really been focused on how we're deploying our resources and high tech to achieve the best outcome and we continue to find that.
And that our customer base has been the area with the highest level of success and as you pointed out that's really why most of the narrative on Hy Tech has been focused on.
New deals and projects with customers.
That said you know the pipeline as we've articulated the last couple of quarters did bottom out and kind of late spring early summer of last year and has continued to prove to improve and I would say also this quarter as I sat through a.
Quarterly business reviews, with the sales team and the activity in that area.
And it does feel like it's picking up.
And then on the Big 10, and you can certainly get a sense for our our football preferences and how we came up with that name, but yes.
We're making good progress there I mean this was really the first one to move and do you think theyre going to be more of these type of deals to come this fiscal year and the early early next.
Got it and then maybe one last one from me just in terms of your expectations.
And in the guide you gave on on percentage of deals.
You know attached with with deal ramps.
First I think last quarter, you talked about roughly 50% of deals is is that with.
And with some type of ramp and it is that still the percentage and do you expect that percentage to persist I guess through the rest of the fiscal year and <unk>.
Hop off thanks, so much.
Yeah. Thanks for that final question Chad so are.
Our guidance does assume that we're still continuing to ramp deals roughly at 50%. It was up a little bit just a slight tick up and.
And our Q1, we expect that steady state to continue into Q2, but as we look at the pipeline and some of the deals that we're forecasting and the second half of the year. We do expect that deal ramps will mitigate and then and especially as we head into 2022, probably.
Return to historical norms.
Thank you.
Thanks Chip.
The next question is from Matt Vanvliet on BT Archie and please go ahead.
Yes, hi, and thanks for taking my question and great job on the quarter and.
Sure.
Just wanted to dig in a little bit on on the J&J deal and obviously and expansion. After you talked about the the Japan and deal last quarter, but I'm curious what you're hearing from them in terms of motivation for both the timing and the overall scope and the project I'm here to start the migration and the U S business.
Yeah, Hey, Matt Great question, So I would say the themes and this deal were pretty consistent with the other themes that we've seen and the customers are definitely looking to make sure. They're current on a mission critical system like ours, particularly as the regulatory environment continues to be fluid and.
And you know I think work from home is also really been a nice tailwind for us as customers.
Grappled with that reality over the last 12 12 months, but I think we all would agree it's probably and element that stays with us post pandemic. So cloud based applications are just easier for our customers.
And their users to consume and then.
And I alluded to this and the script and J&J is pretty excited about our roadmap and some of the new products that we're building and.
Looking forward to partner with us on on some of those initiatives. So it was really the combination of those things that drove J&J and and I'd say those themes are pretty consistent across.
Across the other big customers as well.
And following up on that you mentioned that youre going to co develop a new product we have a sense of at least timing wise when that might be available to the rest of the market and are you able to share any any broader sense of kind of what that's addressing that isn't currently and the portfolio.
Yeah, and our respect for our agreement with J&J, we're not going to disclose specifics on what the product does until it is completed but I will tell you, it's a new analytic product.
And we'll really focus on some of the specific areas of the market relative to government procurement and the J&J project really we're in the planning phase just getting kicked off that project is going to kick off and Ernst and in the spring and run for about eight to 12 months. So it'll this product will be co developed.
And roughly that timeframe.
Got it and then maybe one more.
If I can here.
And.
Some of the bigger customers.
Were you you've seen some traction here how much of the I guess recent M&A of the large customers buying into the biotech world.
And kind of the day motivation for this Deloitte deal and B has already and the first several weeks and you've owned debt kind of opened some doors are started from conversations around some of those pre revenue type of engagements.
Yes, the product that we acquired from Deloitte certainly gives us the flexibility to sell how customers want to buy and.
Many of our large customers have established market access functions and.
And really just need software, but certainly some of those.
Mid sized companies enterprise companies as we would call them do also need business services paired with the software and of course most of those companies have ambitions to become a bigger company. So this just allows us to cover off a much broader swath of the market and bring them into the model N family and have an offering for them.
Alright, great. Thank you guys.
Thanks, Matt.
The next question is from Jackson Ader from Jpmorgan. Please go ahead.
Great and thanks for taking my question guys.
Talking to J&J over the years at Rainmaker, there their installation and the U S is pretty complex. So I'm just curious are they moving the entire Johnson and Johnson U S. Instead.
Installment from on premise to the cloud or is it kind of maybe going to be piecemeal and theyre still from left on the bone.
Yeah. That's a great question Jackson, so as we've talked about J&J, Japan us and fly this is their use.
<unk> pharma business and then their med Tech business is next so to use your.
Words, there is still some meat on the bone to get that med Tech business converted over which is another thing we're working with them on to figure out when that when it comes over as well.
Okay awesome.
And then just doing some rough math on the.
On the acquisition and on a per customer basis, it looks like on a 253 and $1000 or so on a revenue per customer on those 60 customers.
What about the range I mean are some customers seven figures and then some of the pre <unk>.
Revenue customers at pretty small or is that kind of couple of hundred thousand dollars pretty consistent.
Yeah. Your rough math is directionally correct for sure. They do have a couple of big customers that have larger contracts, but.
On that average that you calculated is pretty much in line with what the vast majority of the portfolio looks like.
Alright, great. Thank you.
Thanks Jackson.
Yeah.
The next question is from Joe filling and Baird. Please go ahead.
Yeah.
Great Hi, everyone I wanted to start with the SaaS revenue performance within the subscription line and as the <unk>.
A few questions why and that was about 19% and credits and M. <unk> is that upside primarily reflecting the upfront piece of the J&J deal and then looking ahead can you may be update just expectations for you know the relative mix between cash on the legacy maintenance what those two stream should be.
And you're growing up.
Yes, sure Joe Hello, This is John.
So first on the on the SaaS revenue number that we quoted the $28 million that would include.
The impact from J&J and Q1.
In terms of the mix going forward I would say that that mix has been pretty steady between subscription and maintenance over the last several quarters. So I wouldn't see anything that would dramatically change that here.
Okay, Okay great.
And then maybe stepping back and thinking more strategically about how you see model and evolving over the next couple of years, because you know sitting here. Today. Obviously this is a really strong first corridor, a nearly 20 per cent south sprouts and high teens EBITDA margins.
And yet youre acquiring and does that sound and talking about kind of this Australia and a new.
New era of model and I think you know what what we're seeing currently is already and and trusting era and so can you just maybe go a little bit deeper and to what Deloitte is going to allow you to maybe I don't I don't know accelerate within your product development roadmap on obviously I think the Tam.
And as an interesting piece, but I guess the question is why Deloitte now and is it bringing things that maybe you could have tackled over a number of years, but right now you're just short and name a timeframe.
Yeah, that's a great question, Joe So a few things and there. So we did this was this was a deal process, we had an opportunity to participate in and you know as we talked about and the in the prepared remarks, we really thought this was a great opportunity given some of our cash.
Cash on on the balance sheet to trade off between profitability today and exchange for growth today, as well as tomorrow and really increasing the Tam. We just thought that was was a prudent decision and I. Appreciate your comment that today's era of model N is pretty exciting we would certainly agree with you and.
As this year goes on.
Specially as we get into the summer late summer, we expect to have an analyst day and talk a little bit more about long term, where the company's going but it'll be certainly be more of what you've heard in the past from us we're looking at ways to continue to expand out.
Our software portfolio and add more value to our customers.
In that area of the business and that will continue to be the core area of the business.
The second area that I've talked about on our last several calls and publicly is also looking to expand our analytics offering and I think our data and analytics business for us could be as big as our software business, if not bigger the Deloitte business helped with that that ambition with the gross.
And net product that came over which is essentially and analytic business that we can earn analytic product excuse me that we can resell to.
And to our combined customer base.
And then finally, we do see and opportunity for strategic services.
That really enable our customers to be more successful with our software and our analytics offerings and we have a small splash of this and in the business today, we tend to see customers that consume it have higher satisfaction rates and be stickier and their software subscriptions and so that's the life business also helps and.
Table that that area as well.
That's great I'll leave it there thank you.
Thanks, Joe.
The next question is from Ryan Macdonald from Needham and company. Please go ahead.
Yeah, Good afternoon, Jason welcome John as well.
I wanted to first start on the on the from a product perspective on the Deloitte acquisition.
What sort of how do you view sort of the product rationalization between model N N and Deloitte over the next.
Two to three years here, obviously, it sounds like you're getting on some great new functionality, but will there be a thought of migrating existing delight customers over two two revenue cloud.
No. It's interesting right as we were doing the diligence.
The diligence supported the work that we had done and the strategy project that led up to this acquisition, meaning we had very little overlap between our customer base and their customer base. I mean, it was just it was a small handful of customers that were using model N products and one part of the company and the light products and the other so.
This business really has two components to it and software and then what we're calling business services and the software is really purpose built to.
<unk> combined with the business services to deliver a complete solution.
There are some elements of the technology, we like its very modern it's been built and the last five to six years. So it's a very clean and multi tenant architecture.
<unk> engineering team there.
This also has a background and telecom so they're very comfortable with very large datasets and we think bring.
Bring not only technological expertise that architecture and design expertise to enable that part of our business. So so think of it as components of this solution will eventually enable new products that we're building and the rest of the portfolio both from a technology and a skill set perspective.
Excellent and very helpful and it sounds like from a go to market perspective, there's obviously plenty of cross selling opportunity, but I guess during the diligence process. You know when you looked at that pre revenue segment of the market where model N has not historically.
And I played a big role what did you learn there.
Does this affect the pipeline moving forward from a from a new logo perspective potentially.
Yeah, Great question I mean, the the.
What we've communicated on the Tam expansion of roughly 40% I think really shows you that part of the market, we werent really going after and the fact that we had very little overlap between our logos or even logos day, one that we'd have participated and the sales process and it all really points to there is a segment of the market itself.
<unk> segment of the market that wants to buy software plus services. So.
The vast majority of their pipeline and their target market is additive to our to what was and our pipeline.
Excellent thanks very much.
Thanks, Brian.
The next question is from Terry Tillman of Suntrust. Please go ahead.
Hey, everybody. This is David on <unk> filling in for Terry Tillman.
Thank you for your time guidance can you. Please just talk about high level the duration of deals on that.
A ramp versus non ramped and how that's been trending and how we should think about <unk> growth versus <unk> growth and my first question.
Yeah, I'll I'll comment on the bigger picture and then if John wants to add something I'll invite him to.
I would say, we haven't seen anything anything dramatically change Dave in terms of the structure of ramps and the duration of ramps.
We have had customers that especially bigger customers that are recommitting to model in and our cloud migration and really recommitting for referred to it as the next 10 years and in some cases, they've asked for slightly longer deal terms than our standard three which can help mitigate ramps over time.
But nothing really new overall in terms of the structure of ramps and how we're employing them.
Okay Cool and then just to talk about product utilization and you mentioned data analytics, and just recently and the opportunity set there.
And you are still at about a 2.4 cloud products or <unk> 77 per cent of your customers.
How should we kind of think about that number trending over time does that and more.
And aspiration and move that up.
And for the long medium to longer term or should we look and see that number and <unk>.
And and shorter term just wanted to think high level about debt. Thank you.
Yes, certainly I believe that number increases over the next 12 to 24 months and it increases due to to trends and the customer base one.
We've continued and I'll speak for now specifically about life Sciences, we've really seen nice traction on on new logos.
In life Sciences, and most of those deals we've been selling and Ben.
Land and expand sales campaigns, where we've been landing with just one of our six.
Products that the customer new logo I referenced in the script today is one of those examples and so these new logos that we've been closing over the last couple of years as they go live there's meaningful expansion opportunity and those low in those accounts.
And then I think the thing that we've learned now that we're a.
Call. It a couple of years into SaaS transitions, and really seeing momentum pick up SaaS transitions in and of themselves are proving to be significant catalyst for <unk>.
Cross sells and up sells both new products as well as taking the upgraded footprint and deploying it into into new divisions. So so I do think cross sells and Upsells accelerated also as a byproduct of SaaS transitions.
Okay terrific color. Thank you very much.
Thanks, David.
And.
The next question is from Brian Peterson from Raymond James. Please go ahead.
Hi, gentlemen, thanks for taking the question and I and I loved the Big 10 references so just on.
And as you think about this Jason it's kind of interesting to say that you are co developing products with customers and you've got a potential to kind of sell that back into other customers.
How does that really start and is that something that could be and the pipeline with some other the other members and the big time.
Yeah, Thanks, Brian and I'm glad you caught the big 10 reference I'm sure that the.
And I figured that one wouldn't be lost on you.
With respect to some of these new products again, as we're really mapping out five to seven year Roadmaps with these customers about how theyre going to get current moved to our SaaS offering adopt new products that has really opened another door, where customers have said hey, we think model N is uniquely positioned to partner with us to be.
<unk>.
To build entirely new products, that's been and exciting byproduct as well as these big customers Recommitting to us and.
And so have to say and my experience of 25, plus years and software, including running our product organization. If you've got a customer that is committed willing to pay for willing to help drive the use cases and be a reference for it youre going to have a much more successful new product launch so.
As these opportunities have come up and I believe we'll come up continued to come up we're going to pay close attention to them.
Okay understood and just I know you gave some color on the Deloitte contribution.
Qualitative sense of if that's more a reflection of the run rates of the business or.
And what kind of revenue or cost synergies or kind of assumed and the in the adjusted numbers. Thank you.
Yes, we've assumed a pretty conservative cost synergies this year as we really make sure we understand that business and how to bring it forward and how to grow it and most of the cost synergies are focused around things like hosting and hosting costs and getting more economy of scale, there as we bring and the businesses.
And together as well as eliminating some redundant software components and our.
And our development environments.
And then there are some interesting revenue synergies from cross selling products like gross to net which came over with the Deloitte business and then that solution footprint from Deloitte was U S focused so.
Many of their customers are actually global customers. So there's also an opportunity to cross sell and global tenders management as well as global price management. So it's a nice combination of of.
Cost synergies and revenue synergies and as we always try and do when we give guidance, we try and be very thoughtful and in in the guidance that we gave.
Great. Thanks, guys.
Thanks, Brian.
The next question is from gene Manheimer from Colliers. Please go ahead.
And thanks, gentlemen, and.
Congrats and welcome John.
Hey on the on the Deloitte business.
How much if any other revenue or would you be writing off under purchase accounting and can you share with us what is the normalized.
Margin run rate on the acquired business. Thanks.
Yeah. So.
In terms of the deferred write down it's actually pretty minimal. So this was a carve out situation and.
And so as such and limited in terms of the balance sheet items that were brought over and you can see and our 10-Q that was filed today.
We've got the disclosures there and in terms of what did come over.
And then in terms of.
Kind of the run rate of the business I think as we've tried to articulate what I would do is.
Look at the change and the guidance for fiscal 'twenty one.
And in total revenue, we increased by $14 million from the from our last call and on an adjusted EBITDA basis, we decreased by $8 million and so if you annualize those numbers I think you'd be in the right ballpark, what's the nine month impact from the acquisition and so I think hopefully that gives you some decent guidance in terms of Directionally, where this business is on.
And that's that'd be very helpful. Thanks.
Thanks, John and.
More broadly.
Historically, you guys have talked about a two to three X revenue uplift right Bye bye with your customers transitioning to the cloud. So I'm wondering if that general math holds true with with somebody like J&J and <unk> and your other top 10 customers for that matter and over what time.
Period would we would we see that play out.
Yes, Jamie the guidance, we've given on that Youre exactly correct has been and uplift of two and a half to three and a half times maintenance and so we.
We've just kind of normalized as we talk about it at three X on deals that are a little more some are a little less but most of these big deals that are in play and we're talking about are certainly and that range and we don't we don't expect anything materially different as we go through the SaaS transition chapter.
And we're far enough into it now that we've got good data on it.
Yeah that makes sense and.
What time period, do we see that lift and it's not overnight right.
Yes, it depends on how the deal is structured but.
Some of these deals do have deal ramps and then to accommodate our customer that is running on premise software paying for all they're doing their SaaS transition. So.
As we've talked about more generally with deal structures. They tend to ramp over the course of the initial term which are standard term has been three we've seen some customers that have have.
Asked for slightly longer terms, but.
Still ramping over the term of the deal and I do expect these SaaS transitions, particularly the big ones that are meaningful like J&J to accelerate over the next 12 to 18 months.
That's great. Thanks again congrats.
Thanks Gene.
The next question is from Joe Goodwin from JMP Securities. Please go ahead.
Hey, guys. Thank you so much for taking my question.
And so on the on some of the earlier customers that that often and for the ramp deal.
We started seeing those renewals actually happen and I believe you've done a handful of them, but kind of is there.
Cohort, that's coming and kind of when is that timing set and any color you can provide there would be great.
Yes, so we started ramping deals Joe.
Almost three years ago, not quite three years ago and some of those deals have had varying deal terms or excuse get deal terms and so we have seen deals renew and renew at the full value and then and the second half of last year, we had a concentration of deals as we've discussed about on.
And our Q4 call that cohort again, there's a range of deal sizes and their but excuse me deal terms we.
We will renew over the next couple of years and that will continue to be a tailwind for us, but we've generally had good a good experience.
At renewal renewing at the full rate.
Thank you.
Thanks, Joe.
We have reached the end of the question and answer session and I would now like to turn the call back over to Jason blessing for closing remarks.
Thank you.
Operator, and thank you everyone for attending today, we look forward to talking to you all throughout the quarter and this concludes our call. Thank you very much.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
And.
[music].
Yes.
[music].
And then.
And then.
[music].
And then.
[music].
Okay.
Okay.
[music].
And.
Yeah.
[music].