Q3 2022 Model N Inc Earnings Call
[music].
Good afternoon, and welcome to model N's third quarter of fiscal 2022 earnings conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
With that I.
I would now like to turn the call over to Carolyn boss of Investor Relations.
Please go ahead. Good afternoon, welcome to model N's third quarter of fiscal 2022 earnings call. This is Carol Ambassador Investor Relations for model N.
With me on the line today are Jason blessing model N's, Chief Executive Officer, and John Ederer, Chief Financial Officer.
Our earnings press release was issued after close of market and is posted on our website.
The primary purpose of todays call is to provide you with information regarding our third quarter of fiscal 2022 performance and offer a financial outlook for our fourth quarter and fiscal year ending September 32022.
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 the 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 adopt model N Dot com to access our third quarter press release periodic SEC reports and the webcast replay of this call.
Finally, unless otherwise stated all financial comparisons in the call will be to our fiscal year 2021 results.
With that I'll turn the call over to Jason.
Thanks, Carolyn and good afternoon, everyone. Thank you for joining our call today.
We posted outstanding third quarter results, one of our best quarters ever.
We exceeded all key guidance metrics, including total revenue subscription revenue professional services revenue and adjusted EBITDA.
We also had another very strong bookings quarter with contributions from all growth levers.
At the start of the fiscal year, we set a target to exit the year at a 20% growth rate.
Based on our solid execution SaaS AAR, our growth is now accelerating in excess of 20% and we expect to be at or above this number over the long term.
John will provide more color later in his remarks.
In Q3, we also continued to cement <unk> position as the preferred life Sciences revenue management provider.
In the quarter, we closed SaaS transition with Genentech, Synovia and GSK three of the largest pharma companies in the world.
2022 has been a pivotal year as the conversion of our remaining on premise customers to the cloud continues to accelerate.
We remain ahead of our internal plan for SaaS transitions, which is one of the growth levers driving upside this year.
And perhaps even more importantly, we are seeing a meaningful amount of new sales coming from non SaaS transition deals, which bodes well for the future.
Given the success, we are experiencing with SaaS transmission. We also continue to see our maintenance decline at an accelerating rate compared to recent levels.
Declining maintenance is a seminal event in any on premise to SaaS transition and we view this as a very positive trend in the business.
Next I'd like to share some quarterly business highlights.
During the quarter, we enjoyed strong momentum in life Sciences bookings, which included the three new SaaS transitions that I already mentioned.
And numerous other wins, including new logos and selling into our customer base.
What is most encouraging to me is that the majority of our new bookings came from all other deals which shows how we are well positioned for continued growth as SaaS transition come to a conclusion.
In the quarter, we signed multiple new life sciences customers, including Genmab and Madonna one of the pioneers in COVID-19 vaccines.
And as we have discussed on our previous calls SaaS transitions have been a great catalyst to get back in front of our customers and tell the model N story.
As we continue to deliver on successful SaaS transitions. This is also driving accelerating cross sell and up sell.
We saw this trend continue in Q3 with expansion at several marquee life Sciences customers.
Including Genentech and Gilead.
As we've talked about previously complexities within the health care regulatory environment create an opportunity for model N to innovate and help our customers more efficiently distribute their life changing products to the world.
One example is the federal $3 40, B drug price control program that allows qualifying providers, serving uninsured in low income communities to purchase drugs for manufacturers at significantly reduced prices.
However, this program creates complexity as manufacturers need to determine who is eligible to purchase under this program and who is not so they can prevent revenue leakage.
Given the increasing utilization of the 340 <unk> purchase program under Obamacare or new product has begun to resonate in the market.
During Q3, we scored wins at Gilead and Astellas.
<unk> is another Great example, like state price transparency management, where we are able to quickly bring products to market to help our customers address changing regulatory requirements.
Yeah.
We're also seeing traction in EMEA, which is another long term growth driver for us.
During Q3, the team signed Gal Derma Swiss pharmaceutical company that specializes in dermatological treatments.
Yes ill derma assignment agreement to deploy our global price management provider management and deal management solutions to support their growing business.
<unk> got one solution to manage pricing across three divisions to enable them to standardize their practices.
Around contracting and rebates companywide.
<unk> was selected because of our strong products referenced civil customers and our teams great domain expertise all of which will support <unk> growth over the next several years.
Yeah.
We also saw a strong performance from business services in the quarter, Mike Hobey of Pharmaceuticals, and emerging biopharmaceutical company is another great example of how the business services value proposition resonate with a pre commercial company.
Mike Hobey recently launched their first product the joy of a drug used to treat key women's health issues.
Mike Hope you purchased government pricing commercial contracting and our cloud analytics suite to help scale their business.
Mike Covia selected model N due to our deep expertise and track record of assisting emerging pharmaceutical companies with successful product launches.
<unk> services also closed expansion deals at several other customers, including indexes.
But Texas is notable because they became our newest state price transparency management customer.
Turning to high Tech as I mentioned on our last earnings call. This segment has exceeded my expectations. So far this year as this vertical seems to be returning to a more normal buying pattern.
We continue to see traction with both new logos and customer base deals.
During Q3, we want a highly competitive new logo deal at analog devices. The second largest semiconductor company in the world.
If you recall last year analogue acquired Maxim integrated in a $28 billion Mega merger of the two semiconductor Giants.
After a thorough evaluation analog selected model N deal management and channel data management to support the combined company.
We also saw high tech expansion during Q3 at both Solodyn and Targus.
Solodyn as a great example of how our team has been successful at landing and expanding into new accounts.
During Q2, Solodyn as channel data management or CDM to provide better visibility into channel sales to ensure they are properly enforcing pricing agreements the.
The addition of CDM came on the heels of a successful project deployment earlier this year and is another example of happy customers buying more products.
Turning to professional services.
Our services team continues to deliver the majority of projects on time on budget and a truly best in class services margins.
This delivery excellence is also playing a key role in our sales cycle by providing proof points that we can help our customers rapidly realize value from their model N investment like the solid I'm example, that I referenced earlier.
We have also had several successful go lives recently and I'd like to highlight a few examples.
So curious one of the world's largest influenza vaccine companies saw their business grow rapidly during the pandemic and came to model N to help manage that growth.
So curious is now fully live on Marlin and a great example of how our experienced services team can partner with our customer to rapidly deploy our products and deliver value.
This project included the implementation of model N to streamline compliance tracking and automate the exchange of data with secure some ERP system.
This new solution will allow us to curious to review and modify contracts in real time to ensure commercial and regulatory compliance and reduce revenue leakage.
Since going live we estimate that this integrated solution has saved secure millions of dollars in the form of more accurate payments of charge backs and rebates.
As previously reported we have signed several large SaaS transitions over the last 18 months and it is great to see many of these projects coming to successful conclusions.
Novartis a top five global pharma company signed a SaaS transition in our Q2 fiscal 2021 and I am proud to report that they successfully went live on the model and cloud during Q3.
The Novartis SaaS transition was completed in just 13 months, which is truly remarkable given the size and complexity of their business.
Novartis the SaaS transition is a critical project in their digital transformation and it will allow them to more cost effectively leveraged model and innovation and regulatory updates in the future.
I am, particularly proud of this project because we also partnered with Novartis to make several enhancements to global price management, which were also implemented during this project.
<unk> Serrano is another large global pharmaceutical company that also went live during the quarter.
<unk> has a complex model and deployment and processes over $1 billion of payments through our platform and what's even more impressive is the fact that they were able to complete their SaaS transition in just 17 weeks.
With model and SaaS platform M. D is looking forward to remain in compliance with changing regulations and leveraging innovation delivered through model and seasonal product releases.
I'd like to close by saying that I am very proud of how our team has performed this year. We are capitalizing on all growth levers, including SaaS transitions customer sales, new logos and EMEA expansion.
Im also encouraged by our team's strong execution in a very dynamic global environment.
The team's performance is driving tangible results in the form of accelerating SaaS.
And improving profitability.
Model N has truly hit an inflection point in our SaaS transition journey, but I still believe that the best is yet to come.
Now, let me turn the call over to John to discuss our Q3 financial results and provide an update on our guidance.
John .
Thank you, Jason and good afternoon to everyone on the call today.
As Jason noted, we delivered very strong third quarter results exceeding all of our guidance metrics.
Revenue upside was driven by both subscription and professional services, an adjusted EBITDA margin hit a new quarterly record at 17, 9% in Q3.
We've executed well during fiscal 'twenty, two and our strong bookings performance continues to improve our outlook for the full year.
I will discuss this when we review our updated guidance later in the call.
Turning to our financial results for the third quarter.
<unk> revenue grew 10% to $56 2 million, which exceeded the top end of our guidance subscription revenue increased by 10% to $40 6 million and also exceeded the upper end of our guidance range.
And we saw upside from professional services revenue, which grew by 11% year over year to $15 6 million.
Looking at profitability for the third quarter total non-GAAP gross profit was $34 6 million equating to a gross margin of 62% versus 60% in Q3 last year.
non-GAAP subscription gross margin improved sequentially to 68% compared to 67% in the second quarter and.
non-GAAP gross margin for professional services was very strong again in Q3, hitting 44% versus 41% a year ago. As this team continues to execute extremely well.
Operating expenses for Q3 were lower than expected due to the timing of some hiring and other investments.
As a result, adjusted EBITDA for the quarter was $10 million and well ahead of the high end of our guidance of $7 5 million.
Adjusted EBITDA margin was 18% for Q3 versus 14% a year ago Q.
Q3 marks the fifth consecutive quarter that our adjusted EBITDA margin has been back in the mid teens.
Finally, non-GAAP income was $8 5 million or 23 per share, which is well above the high end of our guidance of <unk> 16 per share.
On the balance sheet, we ended the quarter with $184 5 billion in cash and equivalents, which was up $14 million from the end of March and very strong cash collections.
This solid performance brought our free cash flow for the trailing 12 months ended June 30th up to $26 5 million versus $15 6 million for the comparable period, one year ago.
Current deferred revenue of $54 1 million was down slightly on a year over year basis as increases in SaaS deferred revenue have been offset by declines in maintenance deferred revenue.
Deferred revenue can fluctuate during the year, depending on invoicing cycles, the timing of renewals and other factors.
As an indicator of our recent bookings performance and the future predictability of our business, we typically focus on our Po or remaining performance obligations.
For Q3, our total <unk> grew to $310 1 million, which was up 41% on a year over year basis, while the current portion of our RP O balance was up to $127 1 million.
Presenting a growth of 21% year over year.
The key driver of our RPM results has been the transition to SaaS about a year ago, we started providing more visibility on this part of our business as we've used SaaS <unk> and SaaS net retention as key drivers of our long term model.
For the third quarter, we're very pleased to report that SaaS are our hit $101 1 million.
Year over year growth accelerated to 24%.
Going over the $100 million, Mark and SaaS <unk> was an important milestone for the company and the SaaS component represented 62% of our total subscription revenue in the quarter.
SaaS net retention was also very strong in Q3 coming in at 123% and reflects the mission critical nature of our software.
Now, let me turn to our guidance for.
For the fourth fiscal quarter, we expect total revenue to be in the range of 56 to $56 $5 million with subscription revenue in the range of $41 $5 million to $42 million.
I would note that while the total revenue guidance is essentially the same as the implied guidance from our Q2 earnings call. The mix has shifted to higher subscription revenue and lower professional services revenue.
<unk> backlog utilization and gross margins all remain very strong for our professional services business, but we are seeing more vacation time being used this quarter and therefore lower billable hours.
In terms of adjusted EBITDA, we're expecting a range of eight to $8 5 million and for non-GAAP EPS, we're expecting a range of 18 to 20 per share based on a fully diluted share count of approximately 37 4 million shares.
For the full year of fiscal 2022, we are raising our guidance for the third time this year and now expect total revenue to be in the range of 217 to $217 5 million subscription revenue to be in the range of $158 four to $158 9 million.
Yes, the EBITDA to be in the range of 31.9 to $32 4 million, representing an adjusted EBITDA margin of 15%.
And non-GAAP EPS to be in the range of 70 to 72 per share based on a fully diluted share count of approximately $36 9 million shares.
Looking ahead to next year, while we have not finished our fiscal 2023 planning cycle, we do expect certain trends in the business to continue.
First we are seeing an acceleration in SaaS AAR are particularly as large SaaS transitions continue to close and we expect to generate SaaS <unk> growth above our long term target of 20% over the next year.
Second maintenance revenue has also started to decline more rapidly which is the key inflection point that you often see in SaaS transitions.
Netting these two trends together, we're comfortable with where the current analysts' estimates are for subscription revenue next year.
Third $75 million to $180 million range.
Finally from a professional services perspective, we continue to see high demand for our team, but we would expect the growth rate to moderate to the high single digits. After such a strong year in FY 'twenty two.
In summary, we are excited about the path that we're on and the tremendous progress that is being made this year towards becoming a true SaaS business.
And while the bookings performance in SaaS growth naturally capture the most attention.
My role I was particularly pleased by our record profitability and strong cash flow generation during the quarter the.
The combination of 24% SaaS AOR growth and 18% adjusted EBITDA margin is the epitome of our profitable growth strategy and reflects the hard work and dedication of everyone here at Marvell.
Now I'll turn the call over to the operator for any questions operator.
Yeah.
Thank you.
At this time, we will be conducting a question and answer session.
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One moment, please while we call for questions.
We have our first question from the line of Joe <unk> with Truest Securities. Please go ahead.
Great. Thanks, so much for taking the question. This is Robert on for Joe Mirrors I'm, just curious how many states now have state price transparency regulations and how many are working on them.
How should we think about the potential market size for state price transparency manager.
Yeah. Thanks for the question Robert So the current <unk>.
Number of states that have enacted.
Specific regulation is 22.
And that number is up from the mid to high teens last year.
Throughout the course of this year. So it is something that's becoming very pervasive and we believe it's entirely possible that all 50 states that have unique regulation.
Over the next couple of years so yes.
It's a relatively new trend in the marketplace something that we've been able to respond very quickly with this new product that we co developed with Pfizer and it is one of the fastest growing areas of our pipeline at this point. So it is a very interesting market opportunity for us.
That's great I appreciate it.
Thanks Robert.
Thank you we have next question from the line of Matthew Vanvliet with BTG. Please go ahead.
Hi, This is bill Mcnamara subbing in for Matt Van Vliet.
<unk> is what were the key drivers to the significant improvement in SaaS net dollar retention and how sustainable is the higher level over the next several quarters.
Yes, Bill I'll take that so net dollar retention.
Retention is a relatively new metric that we're disclosing publicly because we started disclosing it at the beginning of this fiscal year and at that point set a target to be in the 110 to $1 15 range, we have since reporting or setting that objective, we've been able to keep pretty consistently beat that every quarter.
And I think what's encouraging when I look at that number each quarter or is it not any one thing anyone product for example.
Thats driving the higher net dollar retention, it's really about us being able to get back in front of our customers as a result of SaaS transitions and some of the new products that we've built and brought to market and in retail the model and value prop and that's been resonating very well so it's a very broad based.
Set of products and services that are driving that net dollar retention number and.
This was a very strong quarter for us.
Great. Thank you.
Thank you.
Thank you we have next question from the line of Chad Bennett to it.
Craig Hallum. Please go ahead.
Great. Thanks for taking my question so.
Youre effectively.
Exit rate for SaaS a quarter early.
That's great and the acceleration of SaaS.
That expansion all look good.
In terms of.
You know looking at and I appreciate the early look into next year, but it just seems like.
We should.
Think about at least a decent acceleration on the subscription line I appreciate the the maintenance dynamic, but if im roughly right.
Your SaaS business is now probably five X your maintenance business.
And from an IRR standpoint.
So John I know you know, we want to be conservative, but but what would what are the puts I guess or what would be the throttles on.
You know.
Pretty decent subscription acceleration you know.
In the next few quarters.
Yeah. So.
I mean, I think if you look at it at the model today, and what we've talked about so far.
That subscription portion of the SaaS piece in particular, it's about 62% of the business. We are we noted that for the Q3 number here.
And so yes. It is the majority of the subscription line, but it's not all of the subscription line.
It is it is growing very nicely and we're actually expecting to see.
And acceleration of that growth rate and we do expect it to be above our 20% long term target here over the next several quarters and really through next year.
But offsetting that is a.
A much more rapid decline on the maintenance side of things and so.
When we look at the balance of those two things and we look out to next year.
We are expecting to see subscription growth overall as implied by the numbers we endorsed.
But you still have a little bit of a cross current in there.
Got it I appreciate the color and then if we look at maybe another one for you John I mean <unk>.
Gross margins, especially subscription gross margin.
Look really good sequentially I think it was almost up 200 bps.
How should we think about that going forward and then also.
You noted that the record record EBIT margins.
You've always been a very rational and balanced model from a revenue growth and EBITDA leverage business.
How do we think about that going into next year. Thanks.
Yeah sure no great question.
And our first on the on the gross margin side of things on subscription in particular.
That will depend a little bit on the on the mix of business between our SaaS business and the business services component.
But the SaaS business had been growing relatively faster and we do see opportunities to continue to expand that as we as we grow and as we continue to scale.
On the EBITDA side of things, Yes. This was a record quarter in Q3.
Youll see that our guidance implies a little bit lower margin in Q4.
But still rounding out at 15% for the year, which will be up on a year over year basis.
As we think about the business and look at the different opportunities in front of US we're always constantly weighing the opportunities for investment.
Versus also dropping some down to the profitability side of things and I think youll see us continue to do that kind of a balanced approach, particularly as we get a little bit deeper into our planning for next year, we will start to make some of those tradeoffs and make sure we're still investing for growth while also driving profitability.
Got it thanks, so much nice job on the quarter guys.
Thanks, Jeff.
Thank you we have next question from the line of Joe <unk> with Baird. Please go ahead.
Oh, great Ah hi, everyone.
Maybe I'll start with a bit of a current events question. Jason you brought up have a changing regulatory requirements that typically is good for model N.
Anything.
And provisions that passed Congress recently, where you would say yeah. There's definitely is going to help us or does that maybe just get folded into the broader idea that you need dedicated solutions in place when thinking about and 10.
Engaging with Medicare Medicaid or just having a better overall sense of your your pricing strategy.
Yeah, that's a great question Joe.
So yeah, the inflation reduction act that the Senate passed and sent over to the house over the weekend.
Made for some great weekend reading for my team and me and the short answer is yes. It does help us and does help drive demand for our solution.
There were a couple of key provisions in that bill that affect our customers manufacturers.
First of which is a new rebate scheme that will be implemented that calls for Medicare to get higher rebates for drug pricing drugs that are increasing at a rate faster than inflation and then also Gibbs Medicare.
Our rights to negotiate directly with drug manufacturers specific.
So we are still trying to evaluate everything that was in the roughly 750 page.
Section of the Bill that covered health care, but it does look like it's going to require some changes to our product and by the way what we're used to making these type of changes we make them almost every year and in some cases quarterly so.
This app is just the most recent example of how things in Washington continue to make the regulation more complex.
And makes it more obvious our value proposition and also makes it more important for customers to be current and beyond our cloud release, because that's where we're going to implement these regulatory changes.
First and foremost so.
Yeah, Great Great question.
Okay.
Okay. Okay. That's on all interesting and then I know you made kind of a passing comment along the lines that you're starting to think about maybe life after SaaS transitions.
And I'm just wondering you know what what inning does this stand that I think entering the year, maybe half of logos that were in the installed base could still undertake this you know where where does that stand.
You may be reaching a point, where you know a SaaS transitions it could be something you could talk about for a number of years, but in terms of consequence, given progress last year and this year, you're may be capturing a lot of the the dollar a potential at this point and then Ah yeah.
I guess right round out the question. Once this topic is done why do you kind of look at or get excited about as sustaining as you've been bringing up the 20% plus gravity handler and SaaS revenue.
Yeah, I'll start with the last point of that question and then answer the first part.
I think it's very encouraging.
When we look at our bookings internally and as we talked about externally. The majority of our bookings now are not coming from SaaS transitions are certainly didn't in Q3. It is from new products like say price transparency management III 40, B deal management advanced membership management model and pay in our high Tech product. So we're seeing.
Really nice contributions from new products and as I've said. This last couple of years has been about getting back in front of customers end retelling the model and story and as you've seen in our net dollar retention that story has been resonating really well with customer and so.
We continue to see acceleration from non SaaS transition bookings and it's very broad based.
You know at the beginning of the year to your point, we did give an update and say we're kind of a third roughly the halfway point on logos in revenue, we've obviously had a very strong.
You are so far through three quarters, signing new customers, who will give a more specific update as we turned the year over the next fiscal but what I will say is that again, we've made significant progress this year, they've got a little bit more than a year left before on premise end of life.
And that deadline has certainly gotten customers attend.
Attention and as I've said, starting when we announced end of life. Most customers are not going to let a compliance system like this go unsupported and so we think we're going to we have very good visibility into the remaining customers and a good handle on what they will convert and I think when this chapter is complete we will look back and say we convert.
Substantially all of our customers from on Prem to the cloud.
That's great. Thank you very much.
Thanks, Joe.
Thank you we have next question from the line of Ryan Macdonald.
Needham. Please go ahead.
Hi, Thanks for taking my questions and congrats on a great quarter, Jason I'm curious I was really impressed by the commentary that you made about sort of success with new logo adoption and I think as we've looked at the store and we all understand that you know ex.
Selling back to the base and managing through the transition has really driven the majority of the revenue growth historically, but I'm curious when you think about the success on new logos whats, perhaps been the catalyst that's really starting to unlock that opportunity. There is it something just in terms of improved sales productivity more talent coming in or I'd be curious to get your thoughts on.
What the catalyst is really opening these new doors.
Yes, it's a great question, Ryan so like a lot of companies during the pandemic, we made a conscious decision.
Let's focus a disproportionate amount of our resources on our customer base, where we have existing relationships and we felt with chase lower friction and selling during uncertain times and I think reflecting back on that that has certainly been the case and then you combine that with the fact that we have an end of life coming up.
Continued to have a disproportionate amount of resources dedicated to customer base selling as we came into this year, though we started to adjust that bias a bit to have more folks are focusing on new logos.
Incremental people focusing on new logos and so we're starting to see that pay off first and foremost.
Our value prop in both verticals continues to resonate extremely.
Extremely well and then as we've talked about in the past our.
Life Sciences is just a very durable vertical through the pandemic through the times that we're in now.
And that continues but Hy Tech has also come back nicely. After a couple of years of lack of investment.
We've really seen that cautious investment I should say really seem that vertical come back and I think there's a little bit of pent up demand there.
So really all of those things are coming together to drive some of the performance you're seeing on the new logo side.
Excellent. Thanks for the additional color there and then as you think about the high tech vertical and in sort of coming.
Coming back to more normal seasonality I guess as you look at the what the pipeline looks like relative to last year can you provide any color on sort of you know magnitude of growth in the pipeline of opportunities what that mix looks like sort of back to base versus new logos.
Yes, it's a healthy mix and I'll just give you a kind of a bigger picture on both verticals. So pipeline in both verticals has continued to build both base and new logo.
I would characterize as life I would characterize life sciences as being very healthy we've been closing a lot of business. This year, but have continued to build pipeline.
Even though we've been closing a lot of it and then I would I would say high tech really started to stabilize and grow last year as we came into this year and it's done.
In a very stable trends throughout the year and also a nice mix of new logo and customer base.
Thanks, Congrats again.
Thanks, Brian .
Thank you.
To ask a question. Please press star one on your telephone keypad. We have a next question from the line of Brian Peterson with Raymond James. Please go ahead.
Hi, This is Jonathan to carry on for Brian . Thanks for taking the question I will just be one from us.
So given that you were in a pretty strong position with a lot of your customers. How you think about pricing as a growth lever in the near term.
Maybe even longer term.
Yeah.
Yeah, we've been we've been.
Very successful as we've been modernizing our contracts with customers and moving them over to SaaS.
Doing a couple of different things one is implementing an innovation index that allows us.
As we move through the contract renewal to raise prices.
And then we also have been pretty successful implementing.
Inflation or CPI plus.
Into our contracts as well and obviously with the way inflation has been tracking.
That has reduced and that has resulted excuse me and some some healthy price increases so far this year. So I think youre seeing a case of a market leader.
That provides a mission critical.
Our solution to our customers.
It does give us some pricing control on the market for sure.
Thanks.
Thanks, Jonathan.
Thank you we have next question from the line of Joe Goodwin with JMP Securities. Please go ahead.
Great. Thank you so much for taking my question.
So on the maintenance portion.
You know of the subscription revenue I apologies. If you did mentioned this earlier I've been hopping around from a couple of different calls, but you say, it's accelerating in terms of its run off out of the model how should we think about that.
Can you give a little more color was that above that range. John that you would share that kind of low to mid double digits. As we think about next year is it going to be stepping up closer to 20% rolling off at any sort of.
Any color there would be great.
Yeah sure.
Happy to Joe So.
Yeah, just to I guess reiterate some of the comments that we made before.
The maintenance had been <expletive>.
Declining in the mid to high single digit range last year, and then as we turn the corner for this year, we started to expect a higher decline than we thought that by Q2, we'd be in the mid teens from a double digit decline perspective.
As we get into Q3 and as we look forward to next year, we're seeing that rate accelerate even further.
Want to get too specific yet, particularly as it pertains to next year.
But we are expecting that to decline at a faster rate than what we've seen and become a little bit of a bigger offset to that SaaS IRR growth on the other side.
Understood. Okay. Thank you for that and then it sounds like.
You all know Deloitte or the business services excuse me, that's going well with the pre revenue customers, but have you seen any any softness there.
I know you called out people, taking PTO, but is there any softness from some of these smaller kind of pre revenue life sciences customers.
We haven't seen softness.
Clarify so that John referenced in our professional services organization.
We're seeing some higher vacations during the summer and that that's what led to that's what's leading to the forecast that John articulated on professional services, so completely different from business services.
On the business services front now we haven't seen any softness in fact, there is still a very robust pipeline for new drug introduction and that's actually the list of customers excuse me of prospects that we target for that solution. So no no softness there.
Got it okay. Thanks, guys.
Yeah. Thank you Jeff.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session and I'd like to turn the call back over to Jason blessing CEO for closing remarks, Oh, sorry.
Thank you operator, and I would once again like to thank all of our employees for their hard work and solid execution, which.
It was clearly illustrated this quarter and our strong results and our guidance for the rest of the year I'd also like to thank our customers for the trust they place in us and we'd be really value their partnership with us. So thank you everyone for participating today and have a great night.
Thank you very much Sir ladies and gentlemen at this time.
Today's conference you May now disconnect your lines. Thank you for your participation.
Okay.
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Okay.
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