Model N Inc. Q2 2023 Earnings Call
Second quarter and fiscal 2023 earnings call.
This is carol in bass Investor Relations for model N.
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 today and is posted on our website.
The primary purpose of todays call is to provide you with information regarding our second quarter of fiscal 2023 performance and offer a financial outlook for third 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 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 Investor Relations website at Investor <unk> Dot model N Dot com in order to access our second quarter fiscal 2023 press release.
Periodic SEC reports.
And the webcast replay of this call.
Finally, unless otherwise stated all financial comparisons in this call will be to our fiscal year 2022 results.
And with that let me turn the call over to Jason.
Thank you Karen and welcome to our call today I am pleased to report that our second quarter results beat expectations across the board.
We exceeded guidance for total revenue subscription revenue and professional services revenue.
This was another strong quarter and underscores our commitment to driving profitable growth.
Our Q2 SaaS metrics were also strong driven by SaaS, AAR, which grew by 40% year over year.
In addition, our SaaS net dollar retention accelerated to 138% year over year.
I am very proud of our team and the business model transformation that we're driving especially in a difficult macro environment.
Given this I am often asked about the impact of the macro on our business. So I would like to proactively address those questions.
First we served two resilient end markets with secular tailwind in life Sciences in particular is a naturally defensive vertical in times of macro uncertainty.
Second we believe that companies in both verticals that we serve are prioritizing investments that deliver tangible ROI and help companies respond to dynamic operating environments, both of which play to model Ns core value proposition.
That said during the quarter, we did see some customers applying more scrutiny to incremental spend and in some cases additional approvals were required to get deals done.
Despite the challenging macro our financial performance this quarter highlights our ability to execute while also delivering further margin expansion with adjusted EBITDA growing 39% year over year.
We remain focused on finishing our business model transition and driving long term profitable growth.
In fact, several of our newer solutions are resonating now more than ever given the focus on profitability and increasing complexity of farmer regulations.
Next I'd like to share some of the business highlights from the quarter success in Q2 was driven by a healthy contribution from all areas of the business.
We signed new deals closed and other large SaaS transition saw numerous customer expansions.
And we also enjoyed solid renewals.
Starting with SaaS transitions during the quarter, we signed Takeda the largest pharmaceutical company in Asia and one of the top 20 largest pharma companies in the world.
<unk> decision to move to our SaaS solution was based on several factors, including the following.
Lower total cost of ownership.
Access to our automated testing suite, which helps customers validate a new model and release.
New regulatory updates, including those to support compliance with the inflation reduction Act.
And access to over 30, new features that will drive immediate business improvements for Takeda.
Takeda is the latest example of a longtime customer that sees value in our cloud offering and as renewing their partnership with modeling to help them maintain commercial and regulatory compliance in an increasingly complex operational environment.
During Q2, we also expanded our footprint at <unk> Pharmaceuticals, a global company that provides a broad portfolio of generic and specialty pharmaceuticals that make healthy possible.
Anthony on the recently acquired <unk> to boost its generic business in the U S. As a part of the team's operational efficiency initiative and Neil deployed model and to support the revenue management needs of <unk>.
This is the latest example of how model and helps our customers execute on their business objectives. In this case strategic M&A.
During the quarter, we also signed several meaningful expansion deals, including a strategic customers such as Novo Nordisk J&J and BMS.
Okay.
Turning to business services, we expanded our relationship during the quarter with an existing customer who is also a leading vaccine provider to support their new go to market partnership with a top 10 global pharma company.
These two companies required a solution that could be quickly deployed to validate membership eligibility for a new product launch.
Model and worked closely with both companies to design the solution leveraging model Ns business services to support the integrated business process between the two companies.
Our ability to work quickly with these customers in a creative way leveraging our broad portfolio of solutions demonstrates our ability to meet virtually any pharma revenue management use case.
Yeah.
Turning to high Tech in Q2, we signed a new logo new blocks, which is a Swiss based fabless semiconductor company that develops some of the worlds, leading Iot and satellite communication modules to support the industrial automotive and consumer markets.
<unk> is transitioning from a direct sales model to a channel sales network and needed a solution to enable them to manage their tremendous distribution partner growth.
<unk> selected model N for our industry, leading technology and expertise in delivering comprehensive deal and channel management solutions.
With model N new blocks will be able to easily analyze key datasets like point of sale information. So they can make more informed decisions on how to profitably manage their channel distribution business.
We also had several high tech expansions in Q2. One example is the micro commercial components or MCC, which produces high quality semiconductors for the consumer and industrial markets.
<unk> expanded their product footprint by adding channel data management to support the growing demand of their various sales channels.
We also expanded our relationship with an experienced AMD and other high tech customers in the quarter.
Turning to professional services, our team exceeded expectations with a very strong quarter. The results of our professional services organization symbolize the strong demand for our mission critical.
ROI solutions, especially in the current macro environment as companies seek to drive bottom line improvement.
Our professional services team continues to do a terrific job of getting new customers live on time and on budget and two are the latest examples or Abbott diagnostics and Edwards life Sciences.
Abbott diagnostics is one of the early adopters of model N in the Med Tech industry.
This division of Abbott delivers diagnostic tests that are designed to increase accuracy and drive operational efficiencies.
And if you've ever used a home COVID-19 test over the last couple of years. It was most likely manufactured by Abbott.
Abbott went live on our cloud platform, allowing their users across nine countries to work from a centralized state of the art revenue management platform.
This project allowed Abbott to standardize their contracting approach retire multiple customization and dramatically increase system performance.
Congratulations to Abbott and our professional services team on another critical milestone as we move all of our customers to the cloud.
Another important go live in the quarter was at Edwards Lifesciences, a med Tech company that specializes an artificial heart valves and other offerings to improve cardiovascular health.
Edwards also went live on time and on budget and is taking advantage of several new enhancements to our product to enable them to more efficiently run their business and get their life changing products to the world.
With an eye towards future growth. We also continue to cultivate a partner ecosystem around model N.
A recent example of this is the new strategic partnership with in partner, a leading provider of channel management technologies in the high Tech vertical.
Under the terms of this new agreement model and in partner will bring to market an integrated offering of model Ns current channel products within partners partner relationship management and partner marketing automation solutions.
This will enable high tech companies to manage their partner relationships and accelerate revenue and profitability through their indirect sales channel.
Also during Q2, a new study by Forrester consulting revealed how improved channel data management leads to better collaboration and bottom line results.
This study identified the need for improved channel data management solutions and highlights the importance of optimizing channel revenue within the semiconductor and electronic component manufacturing industries.
Accurate channel revenue data is no longer a nice to have but instead is a strategic imperative in today's economic climate.
Successfully leveraging channel data management solutions enables suppliers to make informed decisions on partnerships hiring operations and more which leads to higher productivity profitability and overall business performance I encourage you to download this study from our website.
Finally in June we will be holding a rainmaker, our 19th annual customer conference I am excited to announce that this year's event will be held in Nashville.
Rainmaker is a great thought leadership event in educational conference focused on life Sciences, and high Tech and we will bring together hundreds of executives and industry experts from around the world.
I am looking forward to the event and especially looking forward to being back together in person with our customers and partners.
Let me conclude by saying that I'm pleased with our continued execution in an uncertain macro environment.
Our team takes our dare core values very seriously, which stands for dream align respect and excel.
These values embraced building, an inclusive workplace and a maniacal focus on customer success.
Our reported Q2 results reflect this passion and as we look ahead to the second half of the year. We will continue building a great company delivering value to our customers, all while driving growth and improving profitability.
With that I'll turn the call over to John to discuss our Q2 financial results and provide guidance for the second half of the year.
John .
Thank you, Jason and good afternoon to everyone on the call today.
Jason noted we delivered very solid Q2 results that exceeded all of our guidance metrics.
We're particularly pleased by our profit performance as adjusted EBITDA grew 39% versus Q2 last year.
The transformation of our business to a SaaS model has been the key driver of our over performance on both the top and bottom line.
We posted very strong SaaS IRR in SaaS net retention metrics again, this quarter and growth in SaaS revenue is now overcoming the declines in our maintenance stream to drive our overall subscription revenue higher.
Looking specifically at our financial results for the second quarter.
<unk> revenue grew 18% to $62 6 million, which exceeded the top end of our guidance subscription revenue increased by 17% to $44 9 million and also exceeded the upper end of our guidance range.
Lastly, professional services revenue grew by 18% to $17 7 million, which was well above the high end of our guidance as the team ran at a much higher than expected utilization rate.
In terms of our profitability. Please keep in mind that we won't be discussing non-GAAP numbers and a full reconciliation of our results is provided in our earnings release.
For the second quarter total non-GAAP gross profit was $37 8 million, representing a gross margin of 63% versus 59, 8% from Q2 last year, an improvement of 52 basis points.
non-GAAP subscription gross margin was 68% compared to 66, 8% in Q2 of the prior year SaaS revenue increased as a percentage of total subscription revenue.
non-GAAP professional services gross margin was 41% compared to 42% in Q2 last year the higher than expected utilization in Q2 also drove over performance on professional services margin.
Going ahead, we still expect professional services margins to normalize over the second half of the year and be in the mid to high <unk> range.
Adjusted EBITDA for the quarter was $9 2 million, an increase of 39% from the second quarter of fiscal 2022, and well ahead of our guidance range adjusted.
Adjusted EBITDA margin improved to 14, 7% compared to 12, 4% for the second quarter last year.
Finally, non-GAAP net income was $8 6 million an increase of 71% from Q2 of last year and non-GAAP earnings per share was 22.
Which was <unk> <unk> above the high end of our guidance.
As I mentioned earlier, our SaaS business is hitting critical mass and starting to drive our overall results for Q2, our SaaS AAR reached $125 8 million, which was an increase of $35 9 million or 40% versus Q2 of last year.
In addition, trailing 12 month SaaS net retention of 138% in Q2, reflecting our ability to successfully cross sell and up sell customers.
Over the last year, our SaaS <unk> growth rate has been accelerating from 17% in Q2, a year ago to 40% this quarter as we have been benefiting from SaaS transition activity.
Cross sell and up sell activity that occurs around SaaS transitions has also boosted our net retention number and we have seen a similar acceleration of that metric over the last year.
As we've noted on our last couple of earnings calls SaaS revenue is increasing as a proportion of our total subscription revenue and that trend continued in Q2, SaaS revenue, representing 69% of our total subscription revenue as compared to 66% in Q1 and 60% for fiscal 2022.
Mix shift is benefiting our overall subscription growth rates as well as our subscription gross margin.
In terms of the balance sheet, we ended the second quarter with $276 million in cash and equivalents, which was up $95 4 million from Q1.
During the quarter, we added $80 3 million in net proceeds from the refinancing of our convertible debt and we also generated $12 $1 million in cash flow from operations.
Accounts receivable increased to $76 million, which was up $9 9 million sequentially versus Q1.
The increase in accounts receivable was due to record high invoicing with anniversary billings for several large SaaS transitions occurred during the quarter.
Current deferred revenue of $70 8 million was up $3 7 million sequentially versus Q1, and up $13 3 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.
In addition to deferred revenue, we also focus on <unk> or remaining performance obligations as an indicator of the future predictability of our business for.
For Q2, our total ARPA was $338 4 million, which was up 19% on a year over year basis.
Current portion of our RPI balance was up to $146 1 million representing growth of 18% year over year.
While the growth in our current RPI has remained consistent over the last couple of years the growth rate of our total RPM has slowed and is now more in line with the current Rps.
This was primarily due to SaaS transition deals over the last few years, which tend to be longer term commitments and add extra years to the total contract value reflected in our total ARPA for previous periods.
Looking ahead to our guidance for the remainder of the year our outlook reflects the uncertainty in the macro environment, which we feel is prudent.
We also had an unprecedented customer bankruptcy that will be a small headwind to subscription growth over the second half of the year.
In summary for Q3, we expect total revenue to be in the range of 61, 5% to $62 5 million.
With subscription revenue in the range of 45% to $45 5 million and professional services revenue in the range of 16, 5% to $7 million $17 million.
We expect adjusted EBITDA to be in the range of nine five to $10 5 million.
And for non-GAAP earnings per share, we expect a range of 23 to <unk> 25 per share based on a fully diluted share count of approximately $38 9 million shares.
For the full year of fiscal 2023, we are raising our outlook for total revenue and adjusted EBITDA, reflecting the strong performance in Q2.
For subscription revenue, we are tightening the range and increasing the bottom end of our guidance.
In summary for fiscal 'twenty, three we expect total revenue to be in the range of $244 million to $246 million with subscription revenue in the range of $180 million to $181 million and professional services revenue to be in the range of 64% to $65 million.
We expect adjusted EBITDA to be in the range of $39 million to $41 million and non-GAAP EPS to be in the range of <unk> 94 to <unk> 99 per share based on a fully diluted share count of approximately $38 9 million shares.
Some additional context regarding our guidance for the remainder of the fiscal year.
First our guidance reflects the ongoing transition of our business model, which is driving strong SaaS IRR growth, but partially offset by steeper declines in maintenance revenue. We continue to expect maintenance revenue to decline by 30% or more in fiscal 2023.
Second while we do not provide specific guidance on SaaS IRR as we've discussed on our last several calls we expect more moderated growth in Q3, and Q4 as the year over year comparisons get increasingly more difficult.
Still expect SaaS <unk> growth to be above our long term target of 20%, but below the elevated levels that we've seen over the last few quarters due to SaaS transitions.
Third our non-GAAP results for the first half of the year and our outlook reflect the impact of the refinancing of our convertible debt in the second quarter, including adjustments to our accounting treatment of the convertible debt.
More specifically, we have elected to settle both the new 2028 notes and what remains of the 2025 notes using the combination settlement method.
To give you a consistent view for your models. We have provided an updated version of our EPS calculation and shares outstanding for Q1 that is consistent with our Q2 report and our outlook for the remainder of the year.
Can find this table in the supplemental IR deck that is posted on our website.
In summary, we're very pleased with our execution in Q2 and believe that we are on track for the year. We continue to build strong momentum in our SaaS business as evidenced by our SaaS IRR growth in our SaaS net retention and we remain committed to continued improvement on profitability.
With that I'll turn the call over to the operator for any questions operator.
Thank you.
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One moment, please while we poll for questions.
Thank you.
Our first question comes from Joe <unk> with Baird. Please proceed with your question.
Hi, Greg Hi, everyone.
This might be a tricky question to answer, but just given some of the updates you're making around quite you know and also why your plan.
Is it possible to split those two factors up just as it relates to that FY2023 forecast changes today, and I guess, where I'm going with the question. It seems like you now have some thing like you alluded to a customer bankruptcy, but on the other hand, just looking at the CRP out a trend, but it really does.
Seems like there's been much weakness, yes impact that still looks pretty good. So just had two.
<unk> distinguished between the different variables.
Yeah, Hey, Joe This is John speaking so.
And I think it would be difficult to kind of breakdown and parse it in the way you've asked specifically, but I think just generally speaking.
When we looked at our forecast and we looked at the at the macro environment. We felt like it was it was prudent for us to focus on what we can see today and that's our typical method when we provide our guidance and so when we looked at the current uncertainty in the macro environment, a small headwind coming from a customer that has gone bank.
We sold it all of that into our outlook and provided the guidance that we did.
I would note that for total revenue and adjusted EBITDA, We did increase our outlook for the year and we will continue to focus on driving profitable growth whatever the economy may bring.
Okay.
That's helpful and then.
Maybe just looking at your investor materials, the updates this quarter I noticed that.
The market sizing I received a change and there is a bit more detail Ken.
How is your market opportunity as evolve.
One ATM Investor day, specifically.
Maybe some opportunities on the international front.
Just a question you are calling out that your markets are growing at a high teens pace is there any reason one the model transition is over that subscription growth has had a similar high teens pace and what sort of investment might be needed that's more opportunity.
Emerging on the international front, what sort of investment might be needed to go after it effectively thanks.
Hey, Joe This is Jason Thanks for the question I'll answer that and you are correct over the last.
Five plus years, our total addressable market has changed and there's been a few variables in there one is the pricing power and our ability to grow as this market grows.
Secondly, the footprint of the company as you point out has changed from being predominantly focused on U S headquartered farmers and pharmaceutical companies and their operations to now expanding and having a small team in Europe .
We're really focused on bringing our global tender management global price management and international launch excellence products to market. There and then we've also done some things like the M&A in business services that that further expanded our Tam as well as as built new products. So.
As a company we have not been static sense since our last update and as you absolutely noticed have been.
Starting to get some of this new thinking out out into the into the environment through some of our disclosures.
I would also say that some of the investment that you've seen incremental and sales and marketing and product has also been to to support that growth.
Best way to think about it is it's not a step change in expenses, it's really.
And investment to take advantage of these opportunities within our current framework and tenant investment levels.
Great. Thank you very much.
Thanks, Jeff.
Thank you.
Our next question comes from Craig Hallum back with Morgan Stanley . Please proceed with your question.
Yes. Thank you can you talk about how you're feeling about completing the SaaS transition.
By the end of the year and then also importantly, how you see that go to market sales motion that you focus more on upsell and cross sell kind of shifting to the next phase of growth.
Yes. Thanks for the question Craig So a couple of things first of all we still feel really good about our progress on SaaS transitions and we expect by December of this calendar year will be substantially done with those transitions are any remaining customers.
We will be.
Currently in flight on projects to get them current.
With respect to the cross sell upsell motion as we've talked about in the past SaaS transitions have been a great opportunity for us to reengage with customers.
Retail the model and story talk about some of the new products.
We've built and brought to market, particularly things around 340, <unk> state price transparency management just to name a couple and that has actually really helped us.
Perfect and improve upon our cross sell upsell motions in the customer base and in some cases, we've seen SaaS transitions actually drive incremental usage and incremental product.
Footprint ended accounts and in other cases, the SaaS transition has been the catalyst to setup, a multiyear roadmap with that customer.
To consume other products as they get live and in the cloud and then are in a better position to take new products.
Got it and then just as a quick follow up the comment in the prepared remarks about kind of sales cycle and I think up into this point you've been mostly immune in terms of some more macro disruptions in headwinds and just looking for a little bit more context, maybe around just the breadth of what you're seeing out there at certain customers.
Or anything else you'd call out in terms of how you are factoring in the.
The macro hit to your outlook.
Yes, I'll take that one as well Craig. So obviously on every public earnings call. These days and probably for the last couple of quarters customers or excuse me companies.
Companies are getting asked about the macro and so for me I wanted to just proactively.
Dress that topic and I think the best way to maybe add a little bit more color for you is to talk a little bit about each of the verticals and we feel that life Sciences continues to be very healthy it's Ben.
So in a lot of resilience through the pandemic and through the current cycle that we're in.
Some of the things I hear from customers and industry people. There we've got the trifecta of compliance issues. Our customers are dealing with between the inflation reduction Act state price transparency rules, 340, <unk> et cetera, and so that vertical in particular, we feel which is 85% of our.
Revenue is pretty resilient, we did see high tech become a little more cautious in the first half of the year.
And.
Heard customers, saying, Hey, we need to go through additional deal approvals.
To get a project launched.
Heard that on and off throughout the last couple of years, but it did seem that high tech buyers in general had a little more conservatism.
In the first half of this year.
That said, we do even in high Tech, we do see some nice green shoots, particularly in semiconductor companies that are benefiting from the semiconductor backlog companies that are developing new innovative products that are in high demand. So again us commenting on it was really to take the question proactively because we know.
It's getting asked of every company today and just wanted to proactively provide some color.
Understood. Thank you.
Thank you.
Thank you. Our next question comes from Nick Maniaci with Craig Hallum Group. Please proceed with your question.
Hi, This is Nick on for Jeff. Thanks for taking our questions. John maybe if you could just clarify the level of migration activity you expect in the second half of the year.
Just looking at the net new SaaS. They are in the second half it looks like that could be down quite a bit year over year.
Due to the difference in transition contribution year over year or is there kind of a way we can think about non transition that new SaaS growth in the back half of the year.
Yes.
Yes, there is some good questions Nick.
And I'll try to give you some additional color.
Beyond our comments in the script, but I.
I think when we look at SaaS IRR and the outlook in particular for the second half of the year keep in mind that.
A big driver for what we're talking about in the year over year growth rate is really due to Q3 and Q4 last year and so we had a lot of SaaS transition activity.
Start to roll through the model last year, it's continuing to some extent this year.
But when we look at those year over year comparisons the hurdle to get a lot harder.
Hence hence the.
The commentary that we've provided and I think if we step back from this what we're really trying to do is just be transparent with all of you. We know this metric is a lot of attention.
And it's been accelerating and we wanted folks to understand the dynamic that was at play underneath the numbers.
Got it and then just on the guidance specifically for what it implies for Q4 professional services revenue. It looks like that line item is expected to decline both year over year and even more so sequentially from Q3 can you just help us to understand what what's driving that expectation for the decline.
Yes, there is typically a little bit of seasonality in our professional services business in Q4 with vacation cycles and so from Q3 to Q4 I think if you look at the pattern last year Youll see the same thing.
Got it thanks for taking the questions.
Sure.
Thank you.
Our next question comes from Ryan Macdonald with Needham. Please proceed with your question.
Hey, this is Matt on for Brian Thanks for taking the questions and congrats on a strong quarter.
Wanted to follow up on the macro question. So wanted to confirm it sounds like high Tech is maybe a bit more pressured than life science right. Now has that been a consistent trend and then with that in mind, how do you see that in partner partnership helping to unlock maybe some of that deal scrutiny or hesitation in the high tech market and unlock some.
Of those more pressured conversations.
Yes, Matt it's a great question. So you are right I mean kind of consistently with what we've talked about over the last two or three years from the pandemic and now into a.
Continued uncertain macro we have definitely seen more durability and life sciences in terms of demand and and buyers will.
Willingness to.
Kick off large projects with us so so think of it as the relative comparison of strength between the two still exists and we are again seeing a little bit more.
Conservative Miss in Hi Tech at least in the first half of this year.
B and partner.
Partnership.
Flex are one our commitment to high Tech and two the fact that we're excited about that vertical.
And believe.
Believe that has nice secular tailwind behind it even after we get out of this current <unk>.
Macro environment that we're in so in partner relationship was more of an eye towards the future and driving growth and partnering with another company that has a very calm.
Complementary <unk>.
Offerings to us and also anyone anytime you have a partnership like this it's a force multiplier for you will be selling side by side with them sharing leads and pipeline in the field. So again I think it has the opportunity to help today, but even more importantly help us long term.
The sector and the economy recover.
Yeah makes sense I appreciate that and then.
Given that you guys are hitting critical mass in the SaaS transitions, you've talked about as you go through the year more discretionary spend can shift towards new logos or.
Cross sells up sells more of a balanced sales capacity approach are you seeing that those discretionary dollars unlock and how is that kind of in performing some of the investments you plan to make for the back half of the year and into next year.
You hit on those pillars of new logos white space on international expansion.
Yes, that's another great question. So we've actually been investing in our sales capacity over the last two to three quarters and as I've talked about in prior quarters, we've had a slight bias towards white space, because it's a large near term opportunity as I said in the answer to the prior question SaaS transitions or a <unk>.
<unk> catalyst as well for cross sell upsell opportunities so.
Certainly had a bit of a bias towards customer base sales capacity investments over the last few quarters, but that has changed and we've definitely been hiring in our new logo team really with an eye towards growth over the next couple of years and getting those new sales professionals on board this year and really folk.
Just on the remaining large accounts that are out there in both life Sciences and high Tech and I'm excited about that team and the new capacity, that's starting to come online as we move into the back half of the year and look forward to our fiscal 'twenty four.
Awesome. Thanks, Jason.
Thanks, Matt.
Thank you.
Our next question comes from Matt Van Vliet with BTG. Please proceed with your question.
Hey, good afternoon, everyone. Thanks for taking the question maybe.
Maybe digging a little deeper on some of the cross sell opportunity.
A number of products around state price transparency and other similar sort of regulatory components. I think you mentioned the inflation reduction act as well curious on any kind of information you can share with us in terms of take rate.
Our overall sort of market penetration of maybe that is a basket of modules not maybe getting into individual ones, but how do you feel like that ability to cross so that regulatory required reporting is going in your customer base and what is sort of the upper bound of penetration that you think is reasonable.
Yes, Great question, Matt So I mean, just as I guess as a reminder.
Three and broadly speaking the three cross sell upsell opportunities, we have our sales motions that we have in the customer base or selling new products moving into new divisions.
Moving into new geographies.
Right now I'm seeing a lot of great teamwork between our teams in the U S and our team in Europe , and teaming on deals where we might be.
Customer might be using model N in the U S and there is an opportunity in Europe to rollout global price management Global tender management, So I've been I've been happy with how Thats going in and I would also characterize it as early days and not.
Anything thats going to drive growth this year, but certainly over the next couple of years.
And then in terms of new products. So.
<unk> reduction act as a bit of literature.
That was published last summer and we're actually still working with industry leaders and our customers to determine the impact of that probably not a new product for us, but definitely a secular tailwind as people need to be current or using a product like model and to comply with that act.
As it starts to come to fruition.
Most likely at the end of this year and 24, and then two of the products that kind of thinking again in that trifecta of regulatory.
Drivers in the environment right now 340, <unk> state price transparency management are in the conversation with every prospect just about every prospect and customer state price transparency management, we've seen a good take rate on that I mean that product came out little over a year ago, and we've got double digit customer.
Customers on that product now $3 40, B is relatively early compared to stay price transparency management, we worked with a couple of customers built a product they are live and in production and referenced simple now and so now we're really trying to capitalize on that too.
To drive success with other customers and prospects now that the product's gea.
Okay.
Alright very helpful. And then when you look at the business and service business services group.
And some of the success you have maybe pushing into areas of your existing customer base that.
Maybe the under Deutsche to edge, they werent really going after more in the mainstream market and the enterprise level are you still seeing traction for that or have budgets may be dried up a little bit on something.
A more comprehensive on that front, so just kind of what what is the outlook maybe for the second half of the year and then longer term.
How much growth sort of in your existing customer base do you feel like you can penetrate.
Yes, what I would say Matt is again as you move into large pharma companies.
Their ability to invest right now and the overall health and willingness to invest still still feels really good and in the script I mentioned the case, where we have one of our large vaccine providers and a top 10 pharma company that are partnering to bring a product to market and they actually selected our business services offering to help them with some.
The initial go to market and determining who is eligible to participate in the program and how the pricing works and I think right. There is a good example of two industry leaders coming together and coming to us as as their strategic partner to help figure out how we were getting enables us go to market.
And the ability to move quickly with business services really resonated with them and so I think it's just another proof point of.
Business services that value prop does resonate upmarket, where again the inclination to invest still seems pretty healthy.
Alright, great. Thank you.
Thanks, Matt.
Thank you.
Our next question comes from Joe Mirrors with curious Securities. Please proceed with your question.
Hi, This is domenick Monaco on for Joe Thanks for taking the question.
So you've noted that one of the key drivers to your subscription growth has been providing high ROI mission critical solutions. So what is the typical payback period for a new customer on your platform and do you have a range there that you could share.
It's interesting we always work with every one of our sales cycles, whether youre in high Tech or life Sciences is.
Hi, Roy a highly ROI driven sales cycles customers are sometimes a little reticent to share all of that because they can get into pricing negotiations, but I have heard with pretty.
Pretty strong consistency across our customers' that.
Whether they are implementing model and for the first time are implementing one of our new products like $3 40 B.
Vigilance or state price transparency management.
<unk> is usually within a year.
Great. Thank you for that and one more for me. So you noted last quarter that seven of the top 10 global vaccine providers on modeling customers, where you're able to add any more of these in the quarter and if not are you engaging with them or.
Do you have plan to engage with the remaining three anytime soon.
Yes, I think of it more in terms of the top 100 pharma companies in the world and some of those happen to be vaccine providers in some some art and so.
Certainly for the top 100 list and even beyond that.
Customers or prospects, who are not currently a customer we would most likely have all of those assigned out in a territory and a new logo a rep pursuing them.
Alright, thank you.
Thanks Dominic.
Thank you.
As a reminder, if you would like to ask a question star one on your telephone keypad.
Our next question comes from Rishi Galeria with RBC. Please proceed with your question.
Wonderful. Thanks, so much for taking my questions guys nice to see a continued resilience in the business I wanted to ask a two part question around generative AI, Let me start with the first part which is really better understanding.
How youre thinking about your near term strategy around generative AI because as we see it you have a strong market leadership position you've got a lot of data there seems to be a lot of kind of automation that you can offer and unique insights maybe if you could walk us through how youre thinking about your generative AI strategy and you know I don't want to call anything that we might expect that.
Rainmaker, but anything that would be helpful. And then I've got a quick follow up.
Yes.
Yes, I mean, it's certainly a transfer transformative technology and we're looking at a variety of different ways.
We that into our product roadmap and I hear a lot of companies talking about how they may use it in the future, but I think what's exciting about modeling is to talk about how we're using it today and we've got two great use cases, one is a product called global launch excellence.
And global launch excellence allows us to ingest all of the complex pricing rules that exist in EMEA, which are called reference prices and really the best way to think about it is in Europe . The price of the drug in one country is most likely the derivative of how it's priced in another country.
So global launch excellence takes all of these appendant dependencies into account and runs complex simulations that outlined the most profitable country launch sequence.
And then also for products that are in market, we have a real time AI engine that can take a look at let's.
Let's say a discount that you may be considering in Italy, the impact of the price of that drug in Greece and do it in real time, so country managers in European market access teams can make more thoughtful decisions on how they may or may not discount on existing products that are that are in market. So.
Again, that's a great example of where we're using it today.
Our product $3 40, vigilance, which we've talked about on several of our calls is another interesting use case, I think where we are taking the entire.
Data base of prescription scripts that are customer customers products are dispensed against comparing that to the original contract.
Contracting vehicle and then flagging patterns in the data, where we think there might be fraud.
People are erroneously, claiming rebates or other incentives or people, who are trying to buy accidentally under the wrong contract and so that's another example of where we are using it today and again I think those are two important ones to point to because a lot of people talk about how they could be using the technology in the future and we are actually used.
It today in a couple of those both of those products are examples of ones that really resonate well with our customers.
Wonderful that's really helpful. Thank you and then maybe kind of a follow up on the <unk> side when Youre talking to your customer base. What are you. What are you seeing from them in terms of how they plan to better integrate generative AI in their processes I know, we've seen some of the headlines of drugs going through clinical trials that have been developed.
Direly Biogenerative AI.
For example, but love to kind of hear what Youre hearing from customers and how you think that can maybe shape your strategy or your business model over the near or medium term. Thanks.
Well I'm not really qualified to talk on the science side of how customers may use it but I certainly think again, giving good two good examples of how it's being used today I think in market access one of the other areas that I hear from customers and that we're also working on is how can generally that AI go back and look.
At in some cases may be decades of contracts and pricing data and make recommendations to customers on rec.
Recommendations to market access groups on how to better structure contracts going forward in the future in many cases, if you're a drug manufacturer and you're working with a big pharma excuse me a big.
Per payer or provider, sometimes those contracts can be literally thousands of pages long and so being able to draft. The contractor at least the contract shell that can be.
When used for negotiation as one of the next things on the roadmap that we are commonly from customers.
Awesome, that's really helpful. Thank you.
Thanks Rich.
Thank you.
Our next question comes from Brian Peterson with Raymond James. Please proceed with your question.
Hi, This is Jonathan to carry on for Brian . Thanks for taking my question when you have one today.
How do you guys think about investments in tenant expanding products. Since you think thats going to be a key growth driver for you guys post cloud transition or are you kind of comfortable with the opportunity in terms of white space within the existing product set and given the increasingly complex regulatory landscapes in the markets you got it. Thank you.
Yes, it's a good good question, Jonathan I mean, I think the answers both I mean, we've still got a really meaningful amount of white space with our existing customers in terms of selling existing products expanding into geographies in other divisions and then we still have a.
An interesting new logo.
Greenfield amount that's left so if we were to do nothing we actually feel really good about with our current product portfolio and footprint.
Good about what we could drive, but certainly new products and new geographies are the lifeblood of the company and are what really drive that growth over a longer term horizon over the next three to five years.
Thank you.
Thank you.
There are no further questions at this time I would like to turn the floor back over to CEO , Jason blessing for closing remarks.
Well, thank you operator, and I'd like to thank everyone for joining today. We appreciate all of you engaged questions as well as your support and once again I would also like to thank all of our employees customers and partners for supporting us and partnering with us to drive another strong quarter. So thanks, again and have a great night.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
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