Q4 2022 Model N Inc Earnings Call
P G you'd walk into the model in fourth quarter and fiscal 2022 earnings conference call.
At this time all parts.
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A brief question and answer session, Wolfgang and I just don't know.
Mutation.
If anyone should require operator assistance during the conference Chief place Stein.
On your telephone keypad.
As a reminder, this country is being recorded.
It is now my T H introduce your host Carolyne back. Thank you and please go ahead.
Good afternoon.
This is Carolyn bass welcome to model N's fourth quarter and fiscal 2022 earnings call.
With me on the call today are Jason blessing model N's, Chief Executive Officer, and John Ederer, Chief Financial Officer.
Our earnings press release was issued at the close of market and is posted on our website.
The purpose of today's call is to provide you with information regarding our fourth quarter of fiscal 2022 performance and offer a financial outlook for our first quarter and fiscal year ending September 32023.
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 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 release issued today, which is available on our website.
I encourage you to visit our Investor Relations website at Investor Doc modeling dot com to access our fourth quarter and fiscal 2022 press release periodic.
Periodic SEC reports and the webcast replay of this call.
Finally, unless otherwise stated all financial comparisons in this call will be need to our fiscal year 2021 results.
With that let me turn the call over to Jason.
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 professional services revenue.
We also saw a healthy contribution from all of our growth levers.
Our Q4 performance marks the end to a strong 2022 for model N and I'm proud of how our team is executing across all key metrics.
As I reflect on 2022, I am pleased with our consistent execution and the progress we've made delivering profitable growth.
At the start of the fiscal year, we set a target to exit the year at a 20% SaaS AAR growth rate and I am pleased to report that we have exceeded this goal.
SaaS revenue growth for the full year eclipsed, 23% and accelerated throughout the year to 31% in Q4.
Up seven points from 24% just last quarter.
One of the key drivers to our subscription growth has been the fact that model and provides a high ROI mission critical solution, which among other things results in very strong renewal rates.
Our SaaS subscription gross retention rates are best in class and have been trending at or above 90%.
And during the 12 months ended September 32022, our SaaS net dollar retention rate was 129% a new high watermark for us.
2022 was also a pivotal year in our business model transition as the conversion of our remaining on premise customers to the cloud continues to accelerate.
Part of transitioning to a SaaS business model involves taking care of our customers and leading them forward with us.
This past year, we made significant progress on transitions.
As of the end of fiscal 2022, we have transitioned approximately 70% of our on premise life sciences customers to the cloud.
We expect to have substantially all of our customers transitioned over the next 12 to 18 months and we remain ahead of our internal plan for SaaS transitions, which is one of the reasons we saw upside this year.
In addition to successful SaaS transitions overall sales momentum continued to be strong during 2022.
Due in part to the changes we've made over the last three years to our go to market teams.
Notably building out a dedicated customer base and new logo sales teams.
This go to market alignment has allowed us to capitalize on the SaaS transitions, but what's even more important is the focus drove a shift in our bookings composition this year.
Specifically for the full fiscal year. The majority of our bookings came from deals that were not SaaS transitions a trend that became more prominent as the year progressed and several sales professionals worked territories focused solely on white space and expansions.
I would also like to call out the continued strong performance of our professional services team, which is delivering excellent financial results in high quality projects.
This team had a remarkable 2022 and has built a strong backlog for 2023.
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 areas of the business.
We signed multiple new logos to SaaS transitions numerous customer base expansions and we also enjoyed strong renewals across the board.
Yeah.
Turning to SaaS transitions during the quarter, we signed a top 10 global pharma company and long time model N customer to begin their cloud journey.
Our SaaS platform will allow this customer to take advantage of seasonal updates and innovation much more efficiently.
I am also pleased to note that during the sales process the customer elected to add or validate a product, resulting in a nice cross sell tied to the SaaS transition, which is a pattern that we've seen repeat many times this year.
The project is also tied to a larger corporate digital transformation effort to modernize all key operational systems in the cloud.
Yeah.
And other SaaS transition when in the quarter was at Amnio Pharmaceuticals, a publicly traded generics and specialty pharmaceutical company.
Model N cloud platform will support and Neil's corporate objectives and next phase of growth as they prepare for several new drug launches and potentially M&A.
The ROI work that we did with amulets team projects that their cost savings from moving to our cloud platform will be several million dollars over the next few years.
We also closed several new logos in Q4.
One terrific example is novavax, which you may recognize from the news.
Novavax is a multibillion dollar global biotech company focused solely on developing life saving vaccines.
They are currently bringing a COVID-19 vaccine to market, which has received emergency use authorization in the U S and authorization in 42 other countries.
They also have a robust pipeline, including a combined COVID-19 and influenza vaccine, which is expected to reach phase III trials in 2023.
Novavax was looking for a revenue management partner to support their growth, who also had deep vaccine experience.
Modeling met their criteria well and in fact seven of the top 10 global vaccine providers or model of end customers.
<unk> selected model N <unk> full suite of business services, including government pricing and commercial contracting as well as global price management and global tender management for their non U S operations.
<unk> will also be working with our data and analytics partner global price innovations or GPI, who will provide competitive pricing and other market access data.
G. P is international reference pricing rules will also be seamlessly integrated with our global price management module to help novavax make more informed decisions on drug pricing and launches.
Other new logos in the quarter included <unk>, Sarah Biosciences, and a palace pharma.
Turning to high Tech, we continue to see momentum in this part of the business and I am pleased to say that our team exceeded their internal plan for the year.
We also continued to see our land and expand strategy paid dividends and during Q4, we had numerous upsells in high Tech.
A great example is renaissance expanding their model N footprint due to the continued rapid pace of consolidation in the semiconductor industry.
Last year Renaissance acquired dialog semiconductor in their 'twenty 300 employees as a part.
Combining the two large companies into one entity Renaissance expanded their use of model Ns deal management and channel data management across the dialog business.
Modeling leadership position in the semiconductor industry continues to position us well as consolidation in this industry accelerates.
Also during Q4, Kyocera AVX, a leading global manufacturer of advanced electronic components spanning more than 15 countries became a lighthouse customer for our recently announced engage module.
Based on the initial product demonstration they saw the value and move swiftly to secure budget and begin implementation of this new product.
Interestingly enough the idea for engage came out of our first ever company Hackathon last year.
The product isn't inapt guidance tool that is integrated with our platform to improve the end user experience and.
Engage provides intelligent guidance and prompts and our products that drive user engagement, while also helping customers enforced standard operating procedures.
Engage is also used by our product teams to understand usage patterns and identify potential product improvements.
Yeah.
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 Fresenius, NAV ROE Novartis and several others.
Okay.
I have talked about over the last couple of years, we are doing a terrific job of getting customers live on time and on budget.
The latest example of this is Amgen and.
Amgen has grown into one of the world's leading independent biotech companies and has a pipeline of therapies that hold tremendous potential for the future.
In Q4, Amgen completed their SaaS transition, which is an important milestone in our multiyear model N roadmap.
By moving to the cloud Amgen is reducing total cost of ownership leveraging model N's latest innovation and building a foundation on which to deploy additional model and products in future phases.
And finally I am pleased to announce that in Q4, we successfully took via trusts live in the cloud, which was a very complex project.
If you recall, we signed via trusts, our global generic and specialty pharmaceutical company late last fiscal year.
The interest was formed in 2020 through the combination of Mylan and Upjohn and greenstone two division's spun out of Pfizer.
This new global company now one of the top 20 largest pharma companies in the World selected model N to support the combined company and is leveraging our government pricing and reporting validated and managed care modules.
They are now fully integrated under one model N instance, which allows for improved operational efficiencies by providing a unified view of the combined business.
Finally, our product team is doing a great job supporting customers move to the cloud while also delivering seasonal releases on time and new modules, such as state price transparency management and engage to name a few.
To support our continued investment in product. We recently opened our new innovation Center in Hyderabad, Our state of the art facility for product development.
This new office builds on our long time investment in Hyderabad and allows us to continue to expand our software engineering talent pool in a cost effective location.
I personally joined a group of high profile Indian government officials at the facilities inauguration last month.
It was great to see our India team and celebrate Diwali in person with them for the first time in over two years.
I'd like to close by saying that I am extremely pleased with another year of driving profitable growth and that I'm excited about the year ahead.
As I've said in the past a focused model N is a stronger better model N for our investors customers and employees.
Our growth levers of SaaS transitions customer expansions and new logos are driving sustainable profitable growth and we still have runway in all of our growth levers, which makes me optimistic about the road ahead.
I would also like to thank our customers and employees for another great year of partnership and shared success.
Now I'll turn the call over to John to discuss our Q4 financial results and provide guidance for Q1 and fiscal year 2023.
John .
Thank you, Jason and good afternoon to everyone on the call today.
As Jason noted, we closed out the year with another strong quarter, which has enabled us to exceed expectations again here in Q4.
Looking back at fiscal 2022, this has been a continuation and arguably an acceleration of the key themes that you've been hearing from us.
The first is our focus on driving profitable growth.
During fiscal 'twenty, two we drove total revenue growth of 13% subscription revenue growth started to accelerate over the second half of the year.
We increased adjusted EBITDA by 23% to $32 1 million, representing an improved margin of 15%.
And we grew free cash flow by 31% ending the year at $24 3 million.
The second theme is that the transformation of our business model is accelerating.
As Jason noted, we made tremendous progress on SaaS transitions during fiscal 'twenty two.
That execution is now being reflected in our financial results well SaaS IRR growth accelerating to 31% in Q4 and maintenance revenue declining at a faster pace.
Finally, the solid bookings performance in fiscal 'twenty, two which you'll see in the very strong growth of our remaining performance obligations has set us up well for both SaaS revenue growth and our professional services business in fiscal 'twenty three.
Turning to our financial results for the fourth quarter.
Total revenue grew 13% to $58 2 million, which exceeded the top end of our guidance.
Subscription revenue increased by 12% to $42 9 million and also exceeded the upper end of our guidance range.
And we saw upside in professional services revenue, which grew by 15% year over year to $15 3 million.
In terms of our profitability. Please keep in mind that we will be discussing non-GAAP numbers and a full reconciliation of our results is provided in our earnings release.
For the fourth quarter total non-GAAP gross profit was $36 2 million, representing a gross margin of 62, 3% versus 61, 6% in Q4 last year.
non-GAAP subscription gross margin continued to improve sequentially, hitting 70% compared to 68% in the third quarter.
And non-GAAP gross margin for professional services remained at a very high level, hitting 41% versus 39% a year ago.
Operating expenses for Q4 were higher than expected due to roughly $2 million of nonrecurring G&A expenses related to our corporate development initiatives that we elected to no longer pursue.
Adjusted EBITDA for the quarter was $8 2 million, representing a margin of 14%, which was in line with our guidance range of eight to $8 5 million.
Finally, non-GAAP net income was $7 7 million or 20 cents, a share which was at the high end of our guidance.
A key driver of our results in the fourth quarter and our business. Overall. This year was the accelerating transition to SaaS revenue for Q4, our SaaS are our climb to $109 4 million.
It's an increase of $25 6 million or 31% over the last year.
Our SaaS and our our growth rate has been accelerating over the last couple of quarters from 17% in Q2 to 24% last quarter and now 31% in Q4, that's where we're benefiting from SaaS transitions I.
I would note that our SaaS net retention number of 129% in Q4 is also currently benefiting from SaaS transition activity.
As we successfully transition customers to the cloud our maintenance revenue is starting to decline at a faster pace.
In fiscal 'twenty, one we had $22 2 million maintenance revenue for the year and we've forecasted it to decline in the low to mid teens range for fiscal 'twenty to maintenance revenue was $17 5 million for the year, representing a decline of about 21%.
Overall, we view the acceleration of these trends is a positive indicator for our business and.
Fiscal 'twenty, one SaaS revenue represented 55% of our total subscription revenue that.
That ratio climbed to 60% for the full year of fiscal 'twenty, two and we exited the year at an even higher rate of SaaS revenue contributing 64% of our total subscription revenue in Q4.
In terms of the balance sheet.
We ended the year with $193 5 million in cash and equivalents, which was up $9 million sequentially from the end of June and up $28 1 million versus the end of last year.
Current deferred revenue of $62 3 million was up $8 2 million sequentially versus Q3, and up $4 9 million versus last year.
At a high level, we've been seeing increases in SaaS deferred revenue, partially offset by declines in maintenance deferred revenue. That's always deferred revenue can fluctuate depending on invoicing cycles, the timing of renewables and other factors.
It's an indicator of our recent bookings performance and the future predictability of our business. We typically focus on our P O or remaining performance obligations for.
For Q4, our total RP O grew to $335 million, which was up 52% on a year over year basis, while the current portion of our archaea balance was up to $132 million representing growth of 23% year over year.
A key driver of our total RPE O has been the success, we've been having with SaaS transitions, which tend to be larger longer term deals.
To give you a sense of the improved visibility of our business model back at the end of 2019, our current RP O as a percentage of the next 12 months subscription revenue was 56%.
That ratio has steadily increased over the last few years and as we exit fiscal 'twenty two current RP O represents 74% of the midpoint of our fiscal 'twenty three guidance for subscription revenue, which we'll get to in a minute.
Before I transition to our outlook, let me first address a housekeeping item related to a new fast be accounting standard.
Starting in Q1 of fiscal 'twenty, three we will be adopting ASC 2020 O six regarding our convertible debt on a modified retrospective basis. This means that it will impact future quarters, but not our prior financials.
Under the new accounting standard our fully diluted share count will increase by about 5 million shares as our convertible debt will be treated on an as converted basis versus the treasury method, there will be no impact to our adjusted EBITDA or our non-GAAP results.
Encourage you to review our 10-K when filed for more detail.
Now looking at our guidance for fiscal 'twenty three.
In the first fiscal quarter, we expect total revenue to be in the range of $57 million to $58 million with subscription.
Revenue in the range of 42, and a half to $43 million and professional services revenue in the range of 14 $5 million to $15 million.
We expect adjusted EBITDA to be in the range of eight five to $9 5 million.
And for non-GAAP EPS, we are expecting a range of 21 to 23 cents per share based on a fully diluted share count of approximately 43 million shares, including the as if converted shares from our convertible debt.
For the full year of fiscal 2023, we expect total revenue to be in the range of 241% to $244 million.
Scripture revenue to be in the range of $178 million to $180 million, which is at the high end of the preliminary outlook of $175 million to $180 million that we provided on our Q3 earnings call.
And we expect professional services revenue to be in a range of $63 million to $64 million.
We expect adjusted EBITDA to be in the range of $37 million to $40 million and non-GAAP EPS to be in the range of 90 to 97 per share.
Based on a fully diluted share count of approximately $43 7 million shares again inclusive of the as converted shares from our convertible debt.
For the year, we have assumed the continued transition of our business model, which should result in accelerated SaaS AOR growth, but partially offset by steeper declines in maintenance revenue with a blended growth rate reflected in our guidance for subscription revenue.
Further while we do not provide specific guidance on SaaS. They are are we expect to see elevated growth rates in Q1, and Q2 due to SaaS transitions and easier comparisons and then more moderated growth in Q3 and Q4, that's the year over year comparisons get more difficult.
We also expect our SaaS net retention metric to follow a similar trend.
For the full year, we do expect to be above our long term target growth rate of 20% for staffing of our growth with maintenance revenue declined by 30% or more.
In summary, we executed well in fiscal 'twenty, two and we are building strong momentum in our SaaS business our.
The significant progress that we made on transitioning our business model will pay off in fiscal 'twenty three and beyond.
We're already benefiting from improved visibility with an increasing mix of SaaS revenue and our P O climbing to new Heights.
And by focusing our resources and investments on the SaaS business, we expect to drive continued improvements in profitability and cash flow.
Now I'll turn the call over to the operator for any questions operator.
Thank you we will now be conducting a question and answer session.
If you would like to ask a question. Please press star and then one on your telephone keypad.
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One moment, please while we poll.
The first question comes from Ryan Macdonald from Needham. Please proceed.
To your question Ryan.
Hi, Thanks for taking my questions and congrats on a really strong close to a to a great fiscal year.
So obviously, it's been great to see sort of a broad based success that you've had across the business, whether it's from SaaS transitions expansion activity new logos.
As we think about the guidance and the implications for fiscal 'twenty three I'm curious, what you're what you're seeing in terms of the mix of pipeline or or maybe the mix of our growth levers for for next year, and maybe where you have the most confidence and visibility in relation to those three buckets.
Hey, Brian Good evening and thanks for the question so.
Yeah. So as we talked about we hit the 70% Mark on customer conversion SaaS transitions and so we are still expecting to get some contribution.
From that in the new year.
In fiscal 'twenty three this this year.
And then as we've talked about over the past year SaaS transitions have really been a catalyst for us to get into customer accounts and build multi year roadmaps.
To drive expanded use of model N and so I do think we're going to continue to see fantastic yield all of the customer base.
In this this fiscal year and then the other thing that I've talked about on past calls as we have skewed given the SaaS transition opportunity, we have skewed a bit towards investing in the customer base and I do expect this year as we start to invest more in new logos, we'll see that pick up but.
But the majority of bookings this year I expect will come from the base and they will come from selling new products and expansions.
As a as we start to write and close the final chapter on SaaS transitions.
No that's great color I appreciate it and I think as you as you think about sort of driving that higher yield out of the existing customer base there.
Can you talk about some of the modules that you think will be top priority or that that you're pushing with with the sales or work right. Now you know it seems like obviously state pricing transparency is has been a hot topic recently, but you know it seemed like also valid data was a it seems to be growing in prominence and importance in customer conversations.
I would just love to know sort of where you were at those prioritization lie in terms of the expansion. Thanks.
You make a great point, Ryan and framing of your question, we're not really dependent on any one product to drive drive the bookings number in the customer base, but saw.
Certainly as we look forward to this year state price transparency management 340 B are both.
Both our hot topics for our customers that the commercial contracting in the U S.
We've also seen nice growth coming from international and our global products Global price management and global tender management. As you said valid data mentioned is well validated there's a product that has a very tangible ROI.
So it's an ensemble cast of products that I expect are really going to drive a drive that number this year and again I I like it because we're not tied to any one play.
We have multiple plays so we can go on depending on what our customers needs are.
Excellent congrats again.
Thanks Ryan.
Yeah.
Thank you. The next question comes from William Mackie, and I ask them D. T. I G. Please proceed with your question with him.
Hi, Thank you for taking my call I don't know what is the base case for the macro environment in 2023.
And how might the legacy model and business react to a recession and how might that be different than the business services group.
Yeah. So in terms of the macro I would say our results not just in Q4, but you know the entire year. When some of this uncertainty started to manifest itself I think our results speak for themselves as does our guidance for the year.
We provide a strong outlook for Q1 and for the full year and also pulled up the bottom end of our range from the Q3 call. So.
You know we go into the year with some good momentum some nice tailwind as well as we're getting closer.
Closer to end of life on our on premise products and then we also have a you know the regulatory regime, which just continues to get more complex and that drives the business services as well as the core model in business. So we feel good about where we're positioned as we start the year.
Okay. Thank you.
Thanks Bill.
Thank you. The next question comes from Chad Bennett from Craig Hallum Capital Group. Please proceed with your question Chad.
Great. Thanks for thanks for taking my question.
And kudos on the strong yearend and fourth quarter from our SaaS bookings and the IRR standpoint, and just overall bids I think here.
Kind of anomaly out there these days so.
No Jason I didn't hear anything regarding I mean, like you said it shows up in our results, but anything around.
Yeah, Amir otherwise from a from a macro impact whether it's you know sales cycle elongation or additional scrutiny on deals I assume you use the numbers are the numbers and you're not really seeing that today.
Yeah, I think a good double quick chat on the last question and thank you for that yard trends remained healthy in the business.
You know, we actually saw a nice uptick in pipeline as we exited August spin and got into the fall as customers started planning for the next 12 months. So yeah. We've been fortunate so far that we haven't seen any major macro impacts either in the U S or in our Europe business, which is the business, where we have a <unk>.
Much lower level of exposure and I think the other thing that I would mention is we tend to sell we do sell products that help customers with bottom topline and bottom line and you know that regardless of macro is a you know it was always a problem in CFO and head of market access and had some channel sales.
Lying to solve so our value prop does tend to resonate well also in an uncertain macro environment. So.
We have we have been fortunate.
And then no that's great to hear and then just in terms of.
The acceleration you saw especially in the in the second half of the year from a net expansion and SaaS AOR standpoint, I know, Jason you've said the last couple of quarters, you know net new cloud nine non migration bookings have really ramped and I think closed the year really strong.
I don't want to pin you down too much but just on like a net expansion number of $1 29 is there any way to just qualitatively talk about the impact of cross sell up sell on what's a really really good number and really good acceleration in the last or the second half of the year.
Yeah, I mean, there's certainly a bit of a tailwind in there from SaaS transitions and that conversion from maintenance to SaaS. They are I think John mentioned that in his script, but you know as I've said are all year. The SaaS transitions have just been a fantastic catalyst for us to reengage with customers and build out multiyear.
Our road maps to not only do SaaS transition to adopt new products expand usage in the other divisions in other geographies and that really is what's been driving the lion's share of that steady improvement in net dollar retention.
Got it.
And then maybe last one for John So just kind of thinking about the initial guide and in particular on the subscription side.
You know if you close the year really strong it seems like you have as good a visibility because you've ever had especially from a CR P O and coverage standpoint, putting in next year's subscription revenue <unk> close in on a high note and whatnot.
You know do you think.
From a net new a RR standpoint.
I assume you expect SaaS net new a RR for this upcoming year to exceed what it was last year just based on kind of the momentum of the business is is that a fair assessment.
Well, so I think that if you step back and look at the things that are continuing to drive our business. The two biggest things that we've talked about a one on the positive and one on the negative side is this transition between maintenance and SaaS are are and so we tried to provide pretty specific guidance in terms of what we have.
Each would do and in FY 'twenty three so I'll, let I'll, let the guidance stand for itself mhm.
And I think that'll give you some sense in terms of where we would expect the absolute dollar values to be for SaaS are ours as we exit the year.
Okay.
You know are you.
And just because of the environment we're in.
It just doesn't appear in in the subscription guide and I understand you now.
Everybody is being conservative seascape dates on guide, but it doesn't seem like there is you know.
A.
A significant uptick I guess, I'd say Ann and net new bookings that you execute on maybe in the first quarter or second quarter.
In the fiscal year subscription guide is it again is that a in and again I understand revenue rec.
Lags that but.
Is the assumption for kind of net new bookings.
You know.
You did just in case just in <unk>.
Because of the environment we're in.
Hum.
I don't know exactly how to answer that to be perfectly honest, we don't we don't guide on the on the bookings front exactly but.
We are certainly expecting a continued performance on the bookings side and due to a lot of the drivers that Jason mentioned previously would still have SaaS, our SaaS transitions flowing through the model and then we've got a lot of initiatives around net new logos as well as cross sell upsell activity and new geographies and so.
We are very focused on continuing to drive new bookings into the model I think maybe if I'm kind of reading between the lines of your question a little bit perhaps what is missing.
Missing as you know we are still expecting very strong growth on the SaaS side of things, but we're also looking at another acceleration to the downside of the maintenance number and so that unfortunately still provides an offset to that total subscription number in FY 'twenty three but we are starting to work our way through that and I think as we can.
Get through FY 'twenty three.
We'll be done with the biggest impact of that maintenance down and decline.
Yes, I got it thanks, so much nice job guys.
Thanks, Chad.
Thank you. The next question comes from Joe who we can come back. Please proceed with your question Joe.
Great Hi, everyone.
I'm going to take my own stab at a bookings question, but yeah.
I guess the way to frame that so you have really a high coverage on next 12 months subscription revenues just based on what's in current RPI.
Got it.
It is.
Maybe one interpretation that if you have both gaining success like you saw in FY 'twenty to reoccur in FY 'twenty three than there might be upside to the forecast you're providing today.
Well.
I mean, I guess I'm sure. If we are if we over performed our plan and we execute really well I would expect some upside to our forecast but.
You know our guidance reflects our forecast as we see it today.
Okay, one thing I would add on to what what John said.
Is that just point your attention to the.
Commentary that Jon gave in his script on maintenance and how bad is that decline is accelerating significantly this year and so again this will be probably the final year, where we got to talk in depth about this but that maintenance number is going to is going to continue to.
Decline and accelerate while our SaaS. They are continues to be very healthy.
Okay.
That's a good point.
Then on the long term RPI. So I think that was up almost 80% Hot can you maybe.
Ill provide a high level commentary you just saw in Canada, the scope and composition of what seemed like pretty large long dated relationships that customers are engaging with model lineup. That's fine yeah are there particular products. So our yeah you'd called out digital.
Sen effort earlier.
As is the model I'm getting looked at and said he is kind of broader enterprise strategies and that's reflected in the long term compounding of RTL.
Yeah, I'll comment on that first Joe and then John can add if you'd like I think you know that the trend in long term RP O is really related to the progress that we've made with our top 10 top 20 customers. This year.
Signing them up to a long term contracts as they execute on their SaaS transition and in some cases as I mentioned in the one SaaS transition, where we're not able to opt to use their name selling them additional products. So.
You know again, it's been a combination of great progress with our large customers and end up renewing our Knoxville, so to speak as well as selling them more products.
Sure.
Yeah, and I think as we as we you know we commented before with the with regards to the RP O. The SaaS transitions are having an impact on that number and those are those deals do tend to be larger and sometimes longer term in nature. So you know a.
A typical deal for us might be a three year deal SaaS transition deals can sometimes be four or five years in length.
Okay. Okay.
Last one for me if I add back the nonrecurring DNA in Florida.
Second half EBITDA margins, I think trended closer to 18% our starting guidance for tiny tiny three calls for a bit of a moderation relative to those levels are there any certain investments that are already contemplated in the outlook or anything you would call out as swing factors in terms of there.
<unk> margin expectations.
Yeah. There are a couple of things and thanks for the question actually because I did not make a comment on seasonality of our operating expenses and that that is important to note and so in the first quarter of the year. That's when our merit increases go into effect and so we do typically see an uptick in expenses related to that as well.
Some other events and activities that happened in the for the first fiscal quarter and then in the second quarter, we see an uptick again from a payroll taxes. So that's the first calendar quarter of the year.
And so we are typically a little bit lighter in terms of margin in Q1, and Q2 versus Q3 and Q4 and if you look back at our recent years I think you'll see that same trend.
Great. Thank you very much.
Thanks, Joe.
Thank you Chris.
She comes from Joseph <unk> from true. Please proceed with your question Jonathan.
Hi, This is Dominic Monticello on for Joe. Thank you for taking the question. So regarding the high Tech segment. You've noted your intention at all about some semiconductors into components and also software at some point. So what are the main differences between revenue management for hardware versus software and how did these extensions expand your Tam.
Thank you.
Yeah, I mean, there is there's quite a bit of similarity between semi conductors component manufacturers and that's why component manufacturers has been a a.
A logical adjacency for US software there are some similarities if it's a heavy channel business and we've been selective about getting into that market because theres still.
As we've talked about in the past we've characterized the high tech semiconductor and component manufacturers as a $3 $5 billion Tam and are today, Hi Tech is about 15% of our total revenue. So it's an underpenetrated market for us and instead of expanding into other sub verticals in hi Tech the strategy right now is.
You really continue to focus on semiconductors, where we're so dominant and then move into the adjacency.
Component manufacturers and in some cases semiconductor manufacturers are also getting into component manufacturer.
Manufacturing so that's our logic.
Logical step for us.
Great. Thank you.
Thank you Dominic.
Thank you ladies and gentlemen, just another reminder, if you'd like to ask a question. Please press Star then.
One <unk>.
The next question comes from Brian Peterson from Raymond James. Please proceed with your question Brian .
Hi, gentlemen, thanks for taking my questions. So Jason why don't you take a longer term lens on the white space opportunity with your customers post kind of the.
Not sure that you referenced but what are the two to three white space opportunities that you're most excited about over the next five years that we should really be following in terms of thinking about the growth outlook.
I would characterize it into three broad categories. One is just general new product sales of things like state price transparency management engaged new products.
That we're bringing to market because that's essentially new Tam that we're creating.
His divisional expansions and so as we've talked about in the past we have several customers that over the years have implemented model N in one division, but not others they've gone through M&A as an example, and maybe haven't fully deployed model and so.
So I really like that divisional expansion play and then the other is geographic and that's expanding our use of expanding and selling products like global price management and global tender management that are purpose built for markets outside of the U S. So I think about it in those three broad categories in each one of them.
Large meaningful and an exciting.
Great and John maybe a follow up for you on the current RP O comment as it relates to the next 12 months' guidance.
Should we read that into potentially having more visibility into your guidance for this year or was it more conservative.
I'm curious, how we should be extrapolating I comment that the current RPI was a higher percentage of the guide this year than it has been in prior years.
Yeah. So the the the comment was really made with regards to the visibility that we're getting on the business now and so that's of course, one of the benefits of making the transition to cloud and SaaS recurring model.
And in fact, that's playing out and so we've seen a steady increase in that visibility.
Each year as we move through this transition.
Great. Thanks, guys.
Thanks, Brian .
Thank you there are no further questions at this time I'd now like to turn the call back to Jason blessing for closing remarks. Thank you Sir.
Thank you operator, and thank you everyone for joining us today as we discussed on today's call model N closed fiscal 2022 with very strong results delivering another quarter of profitable growth.
While also making investments to position us for the long run I am extremely pleased with our execution. This past year and I'm very excited about the road ahead and again. Thank you all for joining us today and have a great night. Thank you.
Thank you. This concludes today's teleconference, you mean.
May disconnect your lines at this time and thank you very much for your participation.
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