Q4 2023 Model N Inc Earnings Call
Good afternoon, and welcome to model in fourth quarter 2023 earnings Conference call.
During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your telephone.
At any time during the conference you need to reach an operator, Please press star zero.
As a reminder, today's conference is being recorded I would now like to turn the conference over to Carolyn Boss Investor Relations. Please go ahead.
Afternoon, welcome to model N's fourth quarter and fiscal 2023 yearend earnings call.
<unk> Investor Relations for model N.
With me on the call today are Jason blessing model, N's, President and Chief Executive Officer.
John Ederer, Chief Financial Officer.
Our earnings press release was issued at the close of market and is posted on our website.
The primary purpose of todays call is to provide you with information regarding our fourth quarter performance and to offer our financial outlook for our first quarter and fiscal year ending September 32024.
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, and 10-K 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.
I encourage you to visit our Investor Relations website at Investor Dot model N dot com to access.
Our fourth quarter and fiscal 2023 year end press release.
Periodic SEC reports.
The webcast replay of this call and a supplemental investor relations deck for Q4, which includes some additional disclosures that John will review later on in the call.
Finally, unless otherwise stated all financial comparisons in this call will be made to our fiscal year 2022 results.
That let me turn the call over to Jason.
Thank you Carolyn and welcome to our call today.
Pleased to report that our fourth quarter results exceeded guidance with total revenue subscription revenue and professional services revenue.
We were in line with our quarterly guidance on adjusted EBITDA.
Overall, Q4 was a strong quarter and demonstrates our commitment to driving profitable growth.
Our Q4 SaaS metrics were also strong driven by <unk>, which grew by 20% year over year, while SaaS net dollar retention was 118%.
Our strong <unk> growth and improving profitability are proof points that we are building the durable business.
2023 was a pivotal year in our business model transition as we continued to successfully lead our on premise customers to the cloud.
We closed out the year with approximately 85% of our life sciences customers either live or in the process of moving to the cloud up from 70% a year ago.
As you know we have announced end of life for our on premise solution on December 31 2023.
I do expect that we will have a few customers that will need one or two more quarters to sequence their SaaS transition into their IP roadmap, but I continue to believe that we will convert substantially all of our customers.
This is a truly remarkable accomplishment by our team given the complexity and mission critical nature of our applications.
To help put this accomplishment in the context I thought it would be worth a quick recap of the business model transformation that we have driven.
Over the last three years.
Our annual SaaS revenue and adjusted EBITDA has doubled.
This clearly demonstrates the leverage in our model and our philosophy of delivering profitable growth to shareholders.
We have built a great SaaS franchise that provides mission critical products to our customers.
This is a great foundation for future profitable growth as we collaborate with customers to build new products and add new customers to the model N family.
Next I'd like to share some business highlights from the quarter. We delivered strong results that were powered by our key growth drivers of SaaS transition selling back to the customer base and signing new logos. So let me share some examples.
First SaaS transition.
As I've said on past calls we wanted to take our time with the final SaaS transition to make sure that we ended up with mutually favorable agreements with customers.
This approach is paying off and in Q4, we signed five new SaaS transition.
First we signed a SaaS transition with Bausch health companies.
<unk> diversified pharmaceutical company, whose mission is to improve people's lives with their health care products.
This deal builds upon a 20 year relationship between our two companies.
At this stage for the next decade.
Moving to our cloud rollout to more efficiently take advantage of innovation and performance improvements while also staying in compliance with the evolving regulatory landscape.
We also kicked off the SaaS transition with another longtime customer who is one of the largest producers of generic drugs in the world and employs over 20000 people across more than 30 companies.
This customer will need their 90 country footprint through the cloud and will eventually deploy 20 additional countries over the next five years.
During the quarter. We also signed two additional long time large pharma customers to SaaS transition.
Like other customers that have transitioned. These two customers are looking for that put their access to innovation improved performance more predictable cost and of course easier access to new regulatory enhancements.
We also continued to see SaaS transition pay dividend by setting up additional customer base sales as we build out multiyear roadmap here.
During Q4, we saw this pattern will repeat at one of our major customers, where they will start with the SaaS transition as well as add new products, including validated advanced membership management and engage.
This example is particularly encouraging because advanced membership management and engage our new products that we've released over the last couple of years.
Validated is not a new product, but it is one of our more popular products, which sets up future upsell like 330 be vigilant.
This example is a clear testament to our ability to sell new products to our customers.
Turning to business services during the quarter, we signed several customer extension and a new logo area daily.
Daily undecided to move from their current provider to take advantage of improved service levels around processing Chargeback membership administration and Medicaid processing.
Alien was seeking a partner with an organization that could drive improved client interaction and processing using industry best practices and technology.
We had a good quarter in high Tech and mid segment continues to show steady improvement.
In Q4, Cirrus logic and innovator in low power mixed signal technology put top mobile and consumer applications selected model N as the revenue cloud platform of choice.
Cirrus logic has been leveraging some of our on premise solution and we will now move all of their products into our cloud.
This move will allow them to streamline their processes make it easier to collaborate with their partners and consume new releases.
Also in Q4 model N was selected as the vendor of choice with deal management at a regular micros systems, a global manufacturer of sensor integrated circuit used by the automotive and industrial markets.
Allegro has a goal of reducing technology platforms, while automating inefficient manual processes with channel partners.
<unk> management will replace multiple homegrown system and help a Lego better managed global prices automate quoting and discount controls.
Turning to professional services, our team exceeded expectations with another strong quarter for us.
Bulk of our professional services organization symbolize the strong demand for our mission critical solutions as companies seek to drive top and bottom line improvement.
Our professional services team continues to do a terrific job of getting new customers live on time and on budget.
One project in particular that I'd like to call out with J&J and they're successful cloud go lives to support our pharma business.
J&J has a long standing model and customer and this project required the team to ensure success in two key areas.
To engage complex integrations with their downstream infrastructure as well as the custom reporting system.
We were able to meet the needs of the customer and we were also able to pull the go lives forward by one full month to accommodate J&J further and requirements.
As we focus on the future we continue to build new products in collaboration with our customers.
Two recent examples that launched in Q4, our channel collaboration and Medicaid automated invoice retrieval.
Channel collaboration as a new portal that allows our high tech customers to collaborate in real time with trading partners around sales and incentive data.
Historically this business process is done manually and email and we'll start with theirs.
Our channel collaboration quarter will allow customers to more accurately pay their partners, which will drive efficiencies in channel costs and improve overall channel partner satisfaction.
Also during Q4, we started to deploy Medicaid automated invoice retrieval with our design partners, including one of our top five global pharma customers.
This new product is a robotic process automation enabled service that automate acquisition and ingestion of quarterly Medicaid invoices, which has historically been done manually entered verifone.
Manufacturer using this offering you can expect significant productivity and cost improvement each year.
We expect to make this product generally available this quarter.
In closing I am extremely pleased with another year of driving profitable growth.
Our fiscal 2023 results reflect the strong collective effort of model centers around the world.
As I outlined at the start of the call. Our successful cloud transition is clearly showcase by the leverage we've demonstrated in our model in a very short period of time.
Both our annual SaaS revenue and adjusted EBITDA has doubled in just two years.
Looking ahead, our objective is to continue to deliver value to our customers, while driving growth and improving profitability.
With that I'll turn the call over to John to discuss our Q4 financial results and offer our outlook for Q1 and fiscal 2024.
John.
Thank you, Jason and good afternoon to everyone on the call today.
As Jason noted we delivered another good quarter in Q4, and we closed out fiscal 2023 with every metric total revenue subscription revenue professional services revenue adjusted EBITDA and earnings per share all exceeding the high end of the guidance range that we set at the beginning of the fiscal year.
I was particularly pleased by our profit performance with adjusted EBITDA growing by 34% in fiscal 2023, and non-GAAP earnings per share up 54% for the year.
As Jason also described we are working through the final cohort of SaaS transitions and we'll talk a little more about the impact to our business model in a few minutes.
Looking specifically at our financial results for the fourth quarter.
Total revenue grew 10% to $64 million, which exceeded the top end of our guidance subscription revenue increased by 8% to $46 4 million also exceeding the upper end of our guidance range.
Lastly, professional services revenue grew by 15% to $17 5 million, which was above the high end of our guidance as the team continued to run at high utilization rates.
In terms of our profitability. Please keep in mind that we'll 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 $39 6 million, representing a gross margin of 61, 9% and up slightly on a sequential basis from Q3.
Total non-GAAP subscription gross margin was 69, 2%, which was flat sequentially from Q3.
non-GAAP professional services gross margin was 42, 3% in Q4, which once again was exceptional performance by the team.
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 are no longer pursuing we expect another $1 million of expense related to this in Q1 of FY 'twenty four.
As a result, adjusted EBITDA was $11 million, an increase of 34% from the fourth quarter of fiscal 2022, but at the low end of our guidance range for the quarter.
Adjusted EBITDA margin improved to 17, 2% compared to 14, 1% for the fourth quarter last year.
Finally, non-GAAP income for Q4 was $12 2 million up 59% year over year and non-GAAP earnings per share were <unk> 31, which was at the high end of our guidance.
For the full year of fiscal 2023 total revenue grew 14% to $249 5 million subscription revenue, increasing by 14% to $181 4 million and professional services revenue up 15% to $68 1 million.
Gross profit grew to $152 6 million, representing a gross margin of 61% adjust.
Adjusted EBITDA grew by 34% to $42 9 million, representing an EBITDA margin of 17, 2% versus 14, 6% last year.
And non-GAAP earnings per share grew by 54% to $1 11 versus 72 cents last year.
Turning to our SaaS metrics for Q4, our SaaS IRR reached $131 2 million, which was an increase of $21 8 million or 20% versus Q4 of last year.
In addition, trailing 12 month SaaS net retention was 118% in Q4.
Earlier this year, our SaaS are our growth rate and net retention metrics, partially benefited from SaaS transition activity, reaching a peak in our fiscal Q2 this year.
The Q4 results were right in line with our target.
In terms of the balance sheet, we ended fiscal 2023 with $301 4 million in cash and equivalents, which was up $108 million from the end of fiscal 2022, approximately $80 million of the increase in cash was due to the refinancing of our convertible debt in the second quarter with the remainder coming primarily from <unk>.
Operations.
Turning to remaining performance obligations or total RP O for Q4 was $344 6 million, which was up 3% on a year over year basis.
Portion of our RPI balance was up to $148 3 million representing growth of 12% year over year.
As I noted last quarter, our total RPM has been impacted by SaaS transition activity over the last year or so.
We had a period of outsized growth last year due to a number of long term SaaS transition deals often with contract lengths well in excess of three years.
Longer term commitments added extra years, so the total contract value reflected in our RP O.
As renewals and other non SaaS transition bookings become a bigger proportion of the total we are seeing our average contract length and RPM returned to a more normalized level.
Before we get into the details of our guidance for next year, we recognize that it can be difficult to understand some of the underlying trends in the business during the transition as strong growth in SaaS revenue lines, and partially offset by declines in maintenance and term license revenue.
A few years ago, we introduced SaaS IRR and net retention metrics provide insight into the rapidly growing SaaS business that is embedded within our subscription revenue line.
We are providing more detail on the three components of our total subscription revenue one SaaS revenue to subscription services revenue and three maintenance and term license revenue.
First to SaaS and subscription services represent the go forward subscription revenue of the company, which was up 22% on a combined basis in FY, 'twenty, three where SaaS growth at 30% and subscription services growth of 2%.
Third is our legacy maintenance and term license revenue, which declined by 35% in FY2023 as we have been actively converting those customers to SaaS.
You can find the detail for the last three years on page 12 of the Investor overview deck. It is.
Posted on our website and we will disclose these components annually going forward.
As we look ahead to fiscal 'twenty four it will be another year of transition and we expect solid growth in SaaS to again be partially offset by declines in maintenance and term licenses more.
More specifically.
We continue to set a goal for SaaS. They are our growth of 20%, but the comparisons to last year will be very difficult, especially over the first two to three quarters, where we expect growth rates to be in the mid teens.
For our subscription services business, we noted last quarter that we have seen some slowdown in growth for these offerings due to the general macro environment, and we would expect flat to low single digit revenue growth for this segment again next year.
Finally, we expect the combination of maintenance and term licenses to decline even more rapidly in FY 'twenty for dropping by more than 50% as we approach the end of this revenue stream.
In summary for FY 'twenty four we expect total revenue to be in the range of $260 million to $263 million, we expect subscription revenue to be in the range of $193 million to $195 million representing growth of 6% to 8% and right in line with the preliminary outlook that we provided on our Q3 earnings call.
Finally, we expect professional services revenue in the range of 67% to $68 million, which would be about flat with last year I would note that professional services revenue exceeded our expectations in FY2023 making for a very difficult comparison in FY 'twenty four.
We expect adjusted EBITDA for the year to be in the range of $48 million to $51 million representing continued margin improvement.
And finally for non-GAAP EPS, we expect a range of a $1 25 to $1 32 per share based on a fully diluted share count of approximately $40 1 million shares.
For Q1 fiscal 2024, we expect total revenue to be in the range of 61, 5% to $62 5 million with subscription revenue in the range of 46, 5% to $47 million and professional services revenue in the range of 15 to $15 5 million.
We expect adjusted EBITDA to be in the range of eight five to $9 5 million.
And non-GAAP EPS to be in the range of 29 to 31 per share based on a fully diluted share count of approximately $39 2 million shares.
Finally, we've also included a midterm view of our business on page 16 in the Investor Relations deck.
As we look forward a few years and contemplate a normalized business model post transition. We believe that we can return to double digit total subscription revenue growth, while continuing to improve adjusted EBITDA margins into the mid twenties.
While the math is working against us in FY 'twenty four it starts to improve once we get through the downdrafts of maintenance and term licenses.
In summary by maintaining SaaS growth in the 15% to 20% range slightly improving subscription services growth to the mid single digit range and eliminating the year over year declines from maintenance and term license revenue. We would expect the blended growth rate for total subscription revenue to be in the 10% to 15% range.
On the profitability side, we believe that we can drive adjusted EBITDA margins into the low to mid twenties by continuing our steady performance and focus on profitable growth.
Combining these two elements, we can see a path to a rule of 40 business over the midterm based on subscription revenue growth and adjusted EBITDA margin.
With that I'll turn the call over to the operator for any questions operator.
Thank you if you would like to register a question. Please press the one followed by the four on your telephone.
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If your question has been answered and you would like to withdraw your registration. Please press. The one followed by the <unk> III once again to register for a question is one four on your telephone keypad and your first question comes from the line of Adam Hotchkiss with Goldman Sachs. Your line is open.
Great. Thanks for taking the questions I guess, John could you just break out the pieces a little bit more for us on the fiscal 'twenty four guidance relative to what you provided us last last quarter in your in your soft guidance.
Youre thinking about SaaS IRR I know you mentioned that there might be a mid teens growth there in the beginning of the next couple of quarters relative to the 20%.
You had provided last quarter and then just any way you're thinking about maintenance and term license in the business services line.
Relative to last quarter, just breaking down the expectations across those three would be really useful.
Yeah sure Adam I think we made some of these comments in the prepared remarks, but maybe I'll just reiterate a few things I think first off.
In terms of the total subscription number in the growth rate that is right in line with the outlook that we provided on the Q3 call.
And so when I look at some of the components of that on the SaaS IRR in particular, we.
We do continue to set a goal for SaaS <unk> growth of 20%.
But the comparisons to last year are going to be pretty challenging, especially over the first two to three quarters and so over the first let's call. It first half to three quarters of the year, we would expect growth rates to be in the mid teens.
In terms of the other elements.
Again, we laid those out in the comments as well so for maintenance and term license revenue, we expect that to decline pretty significantly again in FY 'twenty, four probably dropping by more than 50% next year.
And then on the subscription services piece, which includes application services and business services.
There, we're expecting to see flat to low single digit growth again next year.
Okay. Thank you that's really helpful. And then just Jason anything you would call out on the on the regulatory side I know there are a number of products you've had launched.
Launched through Rainmaker and have had a number of customer conversations on in relation to recent regulation just any updates on on how customers are responding to that and how that momentum is going.
Yes, so we've got products in market right now to deal with some of the state price transparency laws that have been enacted over the last three or four years that is actually last year was one of our our best selling products in terms of.
Cross selling into customers. So I think that tells you right there how important state price transparency transparency as to customers.
We've also.
Just recently over the last year and released $3 40, B product called 340, <unk> vigilance that helps customers deal with that purchasing program and supplying therapies into low income communities and we've really seen nice pipeline build there and have been working with a couple of our lighthouse customers to continue to enhance the product.
<unk> been definitely two stars for Us that show regulatory is top of mind and then we just issued a press release if it if it wasn't yesterday it was today on our life Sciences.
Fall 'twenty, three release and Thats going to start to lay some of the groundwork for the inflation reduction Act and the.
The pharma companies that are are going to be impacted by that there's roughly 10 therapies on the first round.
Our focus by the government and virtually all of those therapies are produced by our customers. So.
We're starting to layer in inflation reduction act functionality as well so it's a part of every one of our.
Conversations Adam it's a great question.
Great. Thanks for taking the questions, Jason and John.
Sure. Thanks, Adam.
Your next question comes from the line of Ryan Macdonald with Needham Your line is open.
Thanks for taking my question and congrats a nice quarter, Jason I'm curious as you think about the.
The professional services in the business services side of the business.
Curious to see what to hear more about what's contemplated in the growth rate for next year, particularly is today.
Another vendor in this space had called out and then lowered their guidance based off of sort of less discretionary spending on services from life Sciences companies.
They look out over the next year, just curious if youre seeing any impact at all or how much of that's sort of contemplated in the updated guidance for 2004.
Okay.
Yes, I might have seen that other vendors that you're referencing Ryan.
Yes, I mean, as we've talked about.
Last couple of quarters, So we have.
Subscription services bucket and in that bucket is business services and then some enhanced service offerings that we provide to our customers and as I think we've talked about in Q2, but especially on the Q3 call. We have seen some macro impact on those two.
It's been well published that.
Emerging biotech and mid market pharma segment has been impacted by the constricting financial markets and lack of availability to capital. So we see a little bit of impact there and business services as fewer drugs are.
Our approved.
Fewer companies are looking to scale in that market segment, and then certainly on me.
Application services, which is the enhanced services those are things that companies of all sizes as they're tightening their belts can at times see is discretionary so that there was a little bit of macro pressure for us. It was in those two segments and it is reflected in the guide that.
But we just provided as well as our midterm model.
Ryan This is John <unk>.
Hum.
Ryan This is John I'll, just call a distinction to professional services, which is our implementation team and it's a little bit of a different dynamic there.
The team has been doing extremely well over the last couple of years and Theyre still carrying quite a bit of project backlog into FY 'twenty. Four however, with the over performance in FY2023 it's setting up for some pretty difficult comparisons and it will be harder for that piece of the business to grow next year.
Yeah.
I appreciate that additional color there John and maybe as a follow up for you.
Great to see and thanks for providing some of those mid term targets and walking us through some of the math there.
Just curious as we think about the 23% to 26% adjusted EBITDA margin targets in the midterm.
Can you talk about sort of where you expect across the P&L to get the most leverage is are you seeing more at the gross margin level as revenue mix shifts over the next few years or how much do you think more you can squeeze out of sort of the opex, which already runs pretty efficient. Thanks.
Yes. Thank you good good questions.
And and I would say its a few areas. So.
So first of all I think we've just had a very steady and continuous dedication to profitable growth and so it's part of the culture here frankly, and so each year as we set our targets we aim to drive growth, but also drive incremental profit to the bottom line.
In terms of some of the areas that we see leverage up and down the P&L. One is on the gross margin line. So theres a few things that helped there one just becoming.
Our fully dedicated cloud business and not having to spread our resources across different elements.
Helps us the revenue mix also helps so the SaaS portion is more profitable than some of the subscription services and so as that increases as a percent of the total that helps our gross margins as well and then on the operating expense side of things.
Been investing in sales and marketing to drive bookings growth.
Where we've been able to pick up some leverage is on the R&D side, where we don't have to support as many products out there.
And we also see some opportunity for leverage on the G&A line.
I appreciate it thanks for taking my questions.
Sure. Thanks, Brian.
Your next question comes from the line of Craig had niche with Morgan Stanley. Your line is open.
It's Macquarie on for Craig Thanks for taking the question and congrats on a good quarter. John as you think about the 2024 guidance can you talk about a little bit about how much that assumes new customers versus kind of upsell and cross sell.
And then.
Just on 2024 is there anything we should think about as far as billings throughout the season I know kind of renewals are coming up in this quarter and maybe in Q1, just anything to think about going forward. Thanks.
Yeah in terms of the I guess the composition of the overall growth.
Kind of hit on them, but the the key growth drivers remain largely the same so we will still have some.
Some growth from SaaS transition activity.
As well as new logos and cross sell up sell.
Increasingly we're seeing more and more focus on new logo activity and the cross sell upsell and we've done quite a bit of work internally to get organized around those two those two opportunities focusing in on top 100 accounts and really doing quite a bit of work to identify where the white space opportunities are with our existing customers and so.
That's all work that we've been doing and will continue.
And those will be key drivers for FY 'twenty for again.
In terms of the billings.
And some of those cycles.
We did see a little bit more variability last year.
Particularly with some of the anniversary billings of larger SaaS transition deals.
And I would expect we'll see a little bit of that again in FY 'twenty four.
Got it thank you.
That's all I'll hop back in the queue.
Excellent. Thanks Rocco.
And your next question comes from the line of Rishi <unk> with RBC. Your line is.
Wonderful. Thanks, so much for taking my questions first maybe I want to follow up in terms of thinking about expansion for next year. So I understand with the SaaS Andy are you starting to.
Taper off some of the benefit from the SaaS transition you still get some next year.
Should we be thinking about.
Kind of endear, both next year as long as maybe longer term as you get completely through the SaaS transitions and I've got a quick follow up.
Sure.
I'll start with that one.
So.
It's interesting when we first introduced this metric we talked about.
Range for net retention in the 110% to 115% range.
And then we proceeded to beat that I think each and every quarter.
We have gotten benefit over the last year from SaaS transitions and so as you've seen our SaaS AOR growth rate ramp up.
And then come back down to the target rate.
Our net retention metric has done the same thing if I think longer term and look at a 15% to 20% target rate for SaaS revenue in that scenario I would expect net retention to be in the in the mid teens.
With maybe.
Remaining five points of growth coming from new logo activity.
Got it. Thank you that's helpful and then.
I would love to touch on kind of cash flow I mean, you're showing EBITDA margins continue to expand.
Should we be thinking about cash conversion over time, and maybe kind of bridging that delta between adjusted EBITDA and free cash flow. Thank you.
Yeah no.
It's a good question.
And I would say that.
The.
Our cash flow relative to adjusted EBITDA was a little bit off in fiscal 'twenty three.
If you look at our accounts receivable and our DSO metric it actually crept up a little bit year over year.
A big piece of that unfortunately was.
Receivable large receivable that came in on October 2nd instead of September 30, so that would have changed.
The results for us for both DSO and free cash flow.
Having said that I think when we look forward, we would expect cash flow to be closer to adjusted EBITDA, There's really not much below that in terms of capital expense.
We do somewhere in the neighborhood of $1 million a year in capital expense and so youre adjusted EBITDA should trend to free cash flow over time.
Perfect. Thank you so much.
Yep.
Your next question comes from the line of Nick <unk> with Craig Hallum. Your line is open.
Hi, This is Nick on for Chad Bennett, Thanks for taking our questions. So Jason that'd be great. If you could just talk a little bit about your view of model n's opportunity internationally can you just.
Talk about what needs to happen outside of the U S to capture this opportunity and if there's anything fundamentally different about those markets maybe from a compliance a regulator standpoint or is it more about just getting the right sales and marketing infrastructure in place.
A little bit of everything you've touched on mix. So first of all the.
The U S market and how pharma companies are regulated is unique it's really the only market in the world.
That has this level of complexity and government involvement as we look in Europe. As an example, a lot of pharma products are bought through central health ministries and through a tendering process basically an auction.
<unk> in Europe is also a little bit different in the countries will negotiate agreements with pharma companies where.
Where the price they are willing to pay might be the average of call. It five five countries that look like them. So that a similar GDP and similar state of advancement in their health care systems. So how theyre bought how they are priced are different and we actually do have.
Two products that are.
I would describe as functionally complete global price management that helps manage all of the complex reference pricing the country based pricing that I described and then a product that is bespoke vertically tailored for pharma procurement and plugging into the pharma specific tender site. So.
We have great products and we have over the last couple of years, we've talked about those started to selectively invest in our team in Europe in terms of sales capacity solution consulting.
And some professional services and even some product people in theater, it's been a measured investment.
But we do see those products as being very strong products at that T cells and that team also collaborates with our global account teams that might be servicing a U S. Headquartered pharma company with operations in the in Europe. So.
I am excited about Europe, I am excited about our products there and we've got a small but mighty team in that theater of operation as we continue to move forward Ics continuing to selectively invest there.
Got it.
And then just any comments on what Youre seeing in the high Tech vertical just as far as deal activity either new logo expansion, just how is that performing relative to your expectations and any macro impacts to call out for that vertical.
Yes, I mean, as we've talked about kind of widening the aperture over the last couple of years between Covid and supply chain issues.
And then rising inflation or excuse me rising interest rates to combat inflation, we have seen some pressure and we've talked about that in that segment.
That said when I look at our existing customers in high tech they're market leaders in market leaders.
Often invest in projects that have tangible topline and bottom line results and our products do that so we've seen our customer base thoughtfully invest over the last couple of years.
What's been encouraging to me. This year is we've started to see a pickup in new logo in our pipeline. We had nice attendance from hi Tech at at Rainmaker, and we saw that event have a really nice impact on frankly, new logo, both life Sciences and high Tech so as we come into our fiscal 'twenty four I'm pretty excited.
Cited about new logo in general it's been encouraging to see a pickup in the green shoots in high tech as well.
Got it I appreciate you taking the questions.
Thanks, Nick.
Your next question comes from the line of Matt Van Vliet with BTG.
Line is open.
Great. Thanks for taking my questions.
I guess as you get.
Pretty far along here in the SaaS transition.
Go to go to sort of sell back into the existing base or you feel like you experienced any kind of fatigue from some of those customers that have gone through a pretty arduous process to move to the cloud maybe holding off on any expansion or upsell opportunities there or maybe just generally how would you look at the pipeline.
For the cross sell activity over the next couple of quarters.
That's a really good question Matt.
We've seen a little bit of both to be perfectly honest, we've seen customers I talked that I've talked about some of these examples on earnings calls where.
They'll take new products as a part of their SaaS transition.
And so that's worked well for us.
We certainly have though over the last year I mean in some respects.
<unk> had so many of our customers actually going through projects, they've been potentially slower to take new products.
Steady state.
And for me, that's why I'm, so excited about effectively wrapping up SaaS transitions in the next couple of quarters, because that basically gives our entire customer base back to us and allows us to go sell to new divisions sell to new geographies and sell into the white space White space both products that we.
Our building today and products that are on the shelf and ready to go. So I think it's an insightful question and I'm really excited about as I've described it getting the customer base back in and not having to compete with SaaS transitions and really bring some of this new innovation and the new products to our customers, where I know theyre going to see a great value.
Alright, very helpful. And then in terms of overall head count I guess two parts there one on the go to market team do you feel like you need to.
Fill in any any spaces, there add capacity in certain areas.
And then secondarily as you sort of wind down on the SaaS transition on the R&D side can you.
Sort of migrate some of those support type people into a more forward leaning type role.
And how you can leverage that moving forward.
Yes, that's a great question I'll take that one as well. So we've continued to hold sales and marketing as revenue has been growing at about 16% and so implied in that is over the last couple of years. We have continued to feather in new head count on the go to market side. The focus early on particularly given COVID-19.
And the SaaS transition initiatives that we had the early on the focus really was on hiring in the customer base and I think that's what's allowed us to drive.
SaaS transitions in and cross sell up sell nicely over the last couple of years.
Starting last year early in the year, we started to load.
Rotate our bias on hiring more towards new logo and.
Im excited about that I mean, we exit the year with a new logo team, that's really ramped and I think it's a very capable team. We took advantage I would say of a buyers market on talent and got some really really good folks into that team. So I would say as we sit here today were properly resource on go to market and then the second part of your.
Question is also a great one on an engineering and we've essentially been flat flattish on an engineering, but yet we've been supporting SaaS transitions seasonal releases and also building new products and releasing new products and so all of that capacity and our ability to do two seasonal releases a year.
As well as build a couple of new products. A year is is coming almost exclusively from Repurposing engineering capacity that was supporting legacy on Prem code lines historically.
Alright, great. Thank you.
Yes.
Thanks, Matt.
As a brief reminder to all to register for a question. It is one four on your telephone keypad your.
Your next question comes from the line of Smiths Savannah.
With.
With Jefferies. Your line is open.
Hey, guys. This is actually Billy Fitzsimmons on for some odd maybe.
Maybe taking a step back and going Big picture again in the prepared remarks, you discussed macro impacts and I know last quarter. It was discussed how how macro factors have elongated sales cycles.
And now that we're kind of.
Good ways through earnings season, we've heard from a lot of companies and some of them have called out that that macro factors incrementally worsened.
Third calendar quarter of your.
Fiscal fourth quarter. So curious for your thoughts there if anything incrementally is changed for you in what I'm trying to get at is.
We had a couple of companies call it deteriorating macro factors and a lot of them for different reasons. So some are seeing F&B weakness some are calling out specific vertical has got weaker.
Some are saying lower new logo activity. Some are seeing elongated sales cycles and model and there's obviously an enterprise oriented company with very specific verticals. So.
I'm trying to get you guys a sense of those things.
If by chance changes have been incrementally minimal then.
Just be curious if you can comment on what youre seeing or hearing from from your largest customers and if the current macro environment in recent weeks and months.
Yes, it's a good question Billy so.
It reflects back on the year, we talked a little bit about macro headwinds in Q2, especially on some of the things that could be potentially perceived as discretionary and followed that up with a similar trend in Q3 were again discretionary spend was getting a little more scrutiny potentially not making the cut.
On budgets, but on Q3, our Q3 call.
If I remember correctly I talked about I didn't think things have deteriorated as we gone from Q2 Q1 to Q2 to Q3 and as we sit here today I would say the same thing and I think part of that is is that we are a vertical company.
Big Pharma, which is.
You asked about our largest customers. They are continuing to invest we've got lots of projects going on with big customers right now as you can see in our professional services revenue and margin. So yes.
That part of the market, which is ultimately our core constituency seems to be pretty healthy as I talked about in response to the last question, we seem to be seeing a little bit of a pickup in high tech as our existing customers that are market leaders are investing in and we did see a nice.
Nice group of prospects in Hi Tech at 10, Rainmaker and those deals have continued to progress forward in the pipeline. So so yes, I mean, we have seen some of these trends that others have reported.
But I think it's stabilized certainly in our business and we look forward into our fiscal 'twenty four I'm pretty excited about it.
Great.
If I could sneak in one more looking at the press release, you guys highlighted a couple new product releases and enhancements how.
How should we think about the path to monetizing some of these newer solutions.
And years ahead.
Yes so.
I mean, there's.
There's a few new products in there.
340, <unk> is a product that's actually in the market that we've been working with existing.
Customers to enhance and further develop and as I talked about in response to one of the questions earlier in terms of pipeline and interest that one's been a star for us this year.
We're still trying to fully assess the impact of the inflation reduction act, but that's another one where it drives people to our door because they know eventually they're going to have to be comply compliant. So that certainly drives demand for us and then the channel collaboration portal that we talked about on the high Tech side.
Is definitely front and center for a lot of our customers and prospects.
The response to those releases and not just the new products that we've built there but over the last year and the things that are on our roadmap people are really excited about it I think coming out of a rainmaker one of the consistent things I heard from our customers is it's great to see model and coming out on the other side of SaaS transitions really being able to work.
With us and partner with us to build new products and innovate. So so I'm excited about the roadmap and some of the things we're hearing from customers on these new products.
Perfect. Thank you very much.
Thanks Billy.
Your next question comes from the line of Brian Peterson with Raymond James Your line is open.
Hey, Thanks. This is Jonathan macquarrie onto Brian. So I think just kind of reading that last question thinking about the inflation reduction.
It's obviously switching legislation and I'm just trying to maybe you can help me understand are you expecting like any excuse to come out of that regulation was that simply additional functionality each time, a integrated existing platform of them customers coming to you kind of come in the door like you just suggested there and then how soon do you think that could be a meaningful contributor to revenue.
Well for now so so at least as we understand the act inflation reduction Act now and how we think it's going to be implemented it's going to be major enhancements to core model and functionality and in the latest release that shipped.
Made some pretty major changes to the product's data model to contemplate some of the new data fields that we have to track the thing Thats still being worked out is exactly how the negotiations between.
The government and the manufacturers are going to work and how some of the calculations are going to work and it's our belief right now, but thats, probably just further enhancements to our core calculation engine and some of the existing functionality.
What we have certainly seen.
In terms of a catalyst with the inflation reduction act as it has been driving our largest customers to get to the cloud and get current because thats you know as you see with this latest release, where we're we're implementing the new functionality to address this compliance issue.
First version of the inflation reduction act is really going to be targeted therapies that are top 10 sellers, maybe top 20 sellers in the U S and so those by definition tend to be some of the larger pharma companies, but I think the industry views. This is just the start and it's eventually going to be much more wide sweeping.
Wide, ranging excuse me, which definitely drives drives overall demand for us.
Okay. Thanks.
Thank you Jonathan.
Thank you. Your next question comes from the line of Patrick Wall reasons with JMP Securities. Your line is open.
Oh, great. Thank you.
Really great that youre getting to the end of this transition Jason.
Overall, you described the quarter as being strong.
Trying to think I realize there's a ton of things going on but from a sales attainment point of view this quarter was a strong.
The sales forces production meet your your expectations.
It did.
Have a good quarter overall, especially relative to the full year and we saw a nice contribution from a combination of new logos cross sell up sell as well as closing some of these SaaS transitions to end out the year. So yes that was I was happy with with other team ended the year.
Okay, Great Great and then John maybe for you.
Just getting this question and so yes. The sales team was why isn't why were billings and RP O.
Below what people were expecting what's the dynamic there.
So I.
I guess, it's hard for me to speak to some of the expectations that might've been out there and what we're in People's models, but if you look at our total Arps I mean just to confirm.
Yeah. So if you look at those they did move up sequentially.
And that would reflect some of the sales activity that Jason just described.
When you look at it on a year over year basis.
Facing some more difficult comparisons due to some of the SaaS transition activity that occurred at the end of last year.
Okay, and then you mentioned in your in your script too.
$2 million this quarter and one 1 million next quarter of expenses related to our corporate development initiatives.
I mean, it's a lot of money. So what can you tell us about this.
Well Unfortunately, there's not a whole lot more that we're willing to disclose on that.
But we did want to call. It out just in terms of the variance to our Q4 guidance as well as.
Providing some context around where the Q1 guidance stands for adjusted EBITDA in particular so.
Unfortunately, there is not a whole lot more that we can that we can talk about on that one.
Okay. Thank you.
Thanks Pat.
And there are no further questions. So I'll turn the call back to Jason blessing for closing remarks, Thank you very much.
Thank you operator, and thank you everyone for joining us today I'd like to once again, thank our employees for their hard work and solid execution, which is clearly illustrated by our performance in Q4 I'd also like to thank our customers really value. Your partnership and are looking forward to this post Ias transition world where.
We can innovate together.
And again, thank you to everyone for joining us today have a great night.
And that does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your line.
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