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spk04: we've built and brought to market, particularly things around 340B, 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. um footprint in an account and in other cases the sas transition has been the catalyst to set up a multi-year 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 comments in the prepared remarks about kind of sales cycle and you know i think up into this point you've been
spk07: mostly immune in terms of some more macro disruptions and headwinds, and just was looking for a little bit more context maybe around just the breadth of what you're seeing out there. Is it certain customers or anything else you'd call out in terms of how you're factoring in the macro to your outlook?
spk04: Yeah, I'll take that one as well, Craig. So, you know, obviously on every public earnings call these days and probably for the last couple quarters, companies are getting asked about the macro. And so for me, I wanted to just proactively address 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 been shown a lot of resilience through the pandemic and through the current cycle that we're in. You know, some of the things I hear from customers and industry people there are we've got this trifecta of compliance issues our customers are dealing with between the Inflation Reduction Act, state price transparency rules, 340B, etc., And so that vertical in particular, we feel, which is 85% of our revenue, is pretty resilient. You know, we did see high tech become a little more cautious in the first half of the year and, you know, heard customers saying, hey, we need to go through additional deal approvals to get a project launched. And, you know, we've heard that on and off throughout the last couple years, but it did seem that high-tech buyers in general had a little more conservatism in the first half of this year. You know, 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.
spk09: Understood. Thank you. Thank you.
spk10: Thank you. Our next question comes from Nick Mariachi with Craig Hallam Group. Please proceed with your question.
spk03: Hi, this is Nick Onford, Chad Bennett. 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 SAS ARR in the second half, it looks like that could be down quite a bit year over year. Is this just due to the difference in transition contribution year over year, or is there kind of a way we can think about non-transition net new SAS growth in the back half of the year?
spk06: Yeah, those are some good questions, Nick, and I'll try to give you some additional color, you know, beyond our comments in the script. But I think when we look at SAS ARR and the outlook in particular for the second half of the year, you know, keep in mind that, you know, 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 SAS 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 hurdles get a lot harder, hence 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 gets a lot of attention, and it's been accelerating, and we wanted folks to understand the dynamic that was at play underneath the numbers.
spk03: Got it. And then just on the guide, 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's driving that expectation for the decline?
spk06: Yeah, 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, you'll see the same thing.
spk09: Got it. Thanks for taking the questions. Sure. Thank you.
spk10: Our next question comes from Ryan McDonald with Needham. Please proceed with your question.
spk01: Hey, this is Matt Shea on for Ryan. Thanks for taking the questions and congrats on a strong quarter. I wanted to follow up on the macro question. So I 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 the 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?
spk04: Yeah, 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 in life sciences in terms of demand and buyers' willingness to kick off large projects with us. So think of it as the relative comparison of strength between the two still exists. And we are, again, seeing a little bit more conservativeness in high tech, at least in the first half of this year. That said, the in-partner partnership reflects, one, our commitment to high tech, and two, the fact that we're excited about that vertical and believe it has nice secular tailwinds behind it, even after we get out of this current 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 some very complimentary offerings to us. And also anyone, anytime you have a partnership like this, it's a force multiplier for you. We'll 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, uh, as the sector and the economy recover.
spk01: Yeah, makes sense. Appreciate that. And then given that you guys are hitting critical mass on the SaaS transitions, you've talked about as you go through the year, more discretionary spend can shift towards new logos or cross-sells, upsells, more of a balanced sales capacity approach. Are you seeing that those discretionary dollars unlock and how is that kind of informing some of the investments you plan to make for the back half of the year and into next year to to hit on those pillars of new logos, white space, and international expansion?
spk04: Yeah, it'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 are a great catalyst as well for cross-sell, up-sell opportunities. So You know, we've certainly had a bit of a bias towards customer-based sales capacity investment 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 focused 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 24. Awesome.
spk09: Thanks, Jason. Thanks, Matt. Thank you.
spk10: Our next question comes from Matt VanVleet with BTIG. Please proceed with your question.
spk00: Good afternoon, everyone. Thanks for taking the question. 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 rates, Or overall sort of market penetration of maybe that as a basket of modules, not maybe getting into individual ones. But, you know, how do you feel like that ability to cross sell 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?
spk04: Yeah, it's a great question, Matt. So, I mean, just as I guess as a reminder, the three, broadly speaking, the three cross-sell-up sell opportunities we have are sales motions that we have in the customer base are selling new products, moving into new divisions, and 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 a A customer might be using Model N in the US, and there's an opportunity in Europe to roll out global price management, global tender management. So I've been happy with how that's going, and I would also characterize it as early days and not anything that's going to drive growth this year, but certainly over the next couple of years. And then in terms of new products, so Inflation Reduction Act is 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 N to comply with that act as it starts to come to fruition, most likely at the end of this year in 2024. And then two of the products that, you know, kind of thinking again in that trifecta of regulatory drivers in the environment right now, 340B and 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, you know, a little over a year ago, and we've got double-digit customers on that product now. 340B is relatively early compared to state price transparency management. We worked with a couple of customers, built the product, they're live and in production and referenceable now. And so now we're really trying to capitalize on that to drive success with other customers and prospects now that the product's GA.
spk00: All right, very helpful. And then when you look at the business services group chart, and some of the success you have maybe pushing into areas of your existing customer base that um maybe the under deloitte's tutelage they weren't really going after more in the the mainstream market up in the enterprise level are you are you still seeing traction for that or have budgets maybe dried up a little bit on something a little 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 You know, how much growth sort of in your existing customer base do you feel like you can penetrate?
spk04: Yeah, what I would say, Matt, is, again, you know, as you move into large pharma companies, you know, their ability to invest right now and the overall health and willingness to invest still feels really good. And in the script, I mentioned a case where we have one of our large vaccine providers in 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 of the initial go-to-market and determining who's 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 their strategic partner to help figure out how we were going to enable this 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, you know, business services, that value prop does resonate up market where, again, the inclination to invest still seems pretty healthy.
spk09: All right, great. Thank you. Thanks, Matt. Thank you.
spk10: Our next question comes from Joe Mears with Kuro Securities. Please proceed with your question.
spk02: Hi, this is Dominique Mananzala 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 and 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?
spk04: You know, it's interesting. We always work with every one of our sales cycles, whether you're in high tech or life sciences, is highly ROI-driven sales cycles. Customers are sometimes a little reticent to share all of that because it can get into pricing negotiations. But I have heard with pretty strong consistency across our customers that whether they're implementing Model N for the first time or implementing one of our new products like 340B Vigilance or State Price Transparency Management, that the ROI is usually within a year.
spk09: Great. Thank you for that.
spk02: And one more from me. So you noted last quarter that seven of the top 10 global vaccine providers are model and customers. Were you able to add any more of these in the quarter? And if not, are you engaging with them or do you have plans to engage with the remaining three anytime soon?
spk04: Yeah, 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 and some aren't. 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 rep pursuing them.
spk09: Great. Thank you. Thanks, Dominique.
spk10: Thank you. As a reminder, if you would like to ask a question, it is star 1 on your telephone keypad. Our next question comes from Rishi Jalaria with RBC. Please proceed with your question.
spk08: Oh, wonderful. Thanks so much for taking my questions, guys. Nice to see a continued resilience in the business. I want to ask a two-part question around generative AI. Let me start with the first part, which is, you know, really better understanding, you know, how you're thinking about your near-term strategy around generative AI because, you know, 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, you know, that you can offer and unique insights. Maybe if you could walk us through how you're thinking about your generative AI strategy. And, you know, I don't want to spoil anything that we might expect as a rainmaker, but anything there would be helpful. And then I've got a quick follow-up.
spk04: Yeah, I mean, it's certainly a transformative technology, and we're looking at a variety of different ways to weave it into our product roadmap. And You know, I hear a lot of companies talking about how they may use it in the future, but I think what's exciting about Model N 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 a drug in one country is most likely the derivative of how it's priced in another country. And so Global Launch Excellence takes all of these dependencies into account and runs complex simulations that outline 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 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 and European market access teams can make more thoughtful decisions on how they may or may not discount on existing products that are in market. So, again, that's a great example of where we're using it today. Our product, 340B Vigilance, which we've talked about on several of our calls, is another interesting use case, I think, where we are taking the entire product database of prescription scripts that a customer customer's 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 where 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're 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're actually using it today. And both of those products are examples of ones that really resonate well with our customers.
spk08: Wonderful. That's really helpful. Thank you. And then maybe kind of a follow-up on the gender of AI side, when you're talking to your customer base, 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 entirely by generative AI, for example. But love to kind of hear what you're hearing from customers and how you think that can maybe shape your strategy or your business model over the near or medium term. Thanks.
spk04: Well, I'm not really qualified to talk on the science side of how customers may use it, but I certainly think, again, giving 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 generative AI go back and look at, in some cases, maybe decades of contracts and pricing data and make recommendations to customers or make 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 payer or provider, sometimes those contracts can be literally thousands of pages long. And so being able to draft a contract or at least a contract shell that can be then used for negotiation is one of the next things on the roadmap that we are commonly from customers.
spk09: Awesome. That's really helpful. Thank you.
spk10: Thank you. Our next question comes from Brian Peterson with Raymond James. Please proceed with your question.
spk05: Hey, this is Jonathan to carry on for Brian. Thanks for taking the question. We'll just have one today. So how do you guys think about investments in TAM expanding products? Do you think that's 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 of the markets you cover? Thank you.
spk04: Yes, it's a good question, Jonathan. I mean, I think the answer is 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 and other divisions. And then we still have 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. We feel good about what we could drive, but certainly new products and new geographies are the lifeblood of the company and are what really drives that growth over a, you know, a longer term horizon over the next three to five years.
spk09: Thank you. Thank you.
spk10: There are no further questions at this time. I would like to turn the floor back over to CEO Jason Blessing for closing remarks.
spk04: Well, thank you, Operator, and I'd like to thank everyone for joining today. We appreciate all the engaged questions as well as your support. And once again, I'd 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.
spk10: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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