Model N, Inc.

Good afternoon and welcome to Model N's first quarter of fiscal 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. A confirmation tone will indicate your line in the question queue. If anyone should require operator assistance during the conference, please press star 0. As a reminder, this conference is being recorded. With that, I would like to turn the call over to Carolyn Bass, Investor Relations. Please go ahead.

Good afternoon. Welcome to Model N's first quarter of fiscal 2024 earnings call. This is Carolyn Bass, Investor Relations for Model N. With me on the call today are Jason Blessing, Model N's President and Chief Executive Officer, and John Etterer, Chief Financial Officer. Our earnings press release was issued at the close of market and is posted on our website. The primary purpose of today's call is to provide you with information regarding our first quarter performance and offer a financial outlook for our second quarter and fiscal year ending December 31, 2024. The commentary made in 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, PENQ, 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 or an isolation from, GAAP results. Reconciliations of the non-GAAP metrics to the nearest GAAP metrics are included in the earnings release issued today, which is available on our website. I encourage you to visit our investor relations website at investor.modeln.com to access our first quarter fiscal 2024 press release, periodic SEC reports, and the webcast replay of this call. Finally, unless otherwise stated, All financial comparisons in this call will be made to our fiscal 2023 results. And with that, let me turn the call over to Jason.

Thank you, Carolyn, and welcome to our call today. I am pleased to report that our first quarter results exceeded guidance for total revenue, subscription revenue, professional services revenue, and adjusted EBITDA. We also generated over $20 million in incremental cash flow from operations in Q1 versus the first quarter of last year. This metric is another proof point that demonstrates the overall health of our business and the progress we've made on our business model transformation. Our Q1 SaaS ARR grew by 16% year-over-year, while SaaS net value retention was 115%. As we have said on the last two calls, we face tough comparables this year in the first few quarters when compared to last year's record-setting SAS metrics. That said, we expect our SAS growth metrics to improve as we exit the year, and we are pleased with our start to 2024. Next, I'd like to share select business highlights from the quarter. I am encouraged by Q1 because we signed one of our last remaining large SaaS transitions, but more importantly, we saw meaningful contribution from our long-term growth drivers. The bookings mix included new logos and numerous customer-based deals, including transactions involving recently released products. I was also pleased to see a strong order from business services. In Q1, our new logo team posted a strong start to the year. In Life Sciences, I am pleased to announce a marquee win with the signing of Bayer Pharmaceuticals, a top 20 global pharma company that is currently going through its own transformation. Bayer's broad portfolio includes many world-famous products that have shaped their iconic brand. This was a competitive win and includes our full suite of cloud offerings, including all commercial, Bear sought a best-of-breed solution to address their revenue management challenges, which included many manual and outsourced processes. Additionally, Bear is looking to establish a robust platform to support multiple upcoming product launches. Model N will be instrumental in supporting these new launches while also delivering several operational improvements, resulting in a strong ROI when the system is fully deployed. In life sciences, we also continue to see solid growth within our customer base, led by new products that we're releasing. Novartis, a prominent Model N SaaS customer, recently implemented Model N Engage in support of their focus on operational excellence. Engage is Model N's innovative in-application guidance tool, specifically designed to help users navigate the system while also helping to enforce key operational and compliance controls. Engage also provides real-time analytics to customers and Model N to help identify where users are having challenges with system usability. This helps us to improve our user experience and empowers customers to streamline user procedures. The adoption of Engage at Novartis demonstrates this new product's ability to help companies be more successful with their Model N investments while also improving overall operational excellence. Also in Q1, Apellis Pharmaceutical selected Global Launch Excellence to augment their existing deployment of Model N's Global Pricing Management. Apellis is a global biopharmaceutical company that develops transformative medicines for people living with rare retinal and neurological diseases. Model N's Global Launch Excellence module will allow Apellis to create complex launch sequences by combining accurate price data volume forecasts, and optimization algorithms to ensure that their therapies efficiently reach the patient populations that need them most. Turning to business services, during the quarter we signed several customer expansions. One I'd like to highlight is at Moderna. Moderna expanded their business services consumption to handle their membership, contract administration, and rebates processing to support their growing business. Moderna is also a case study on how business services allows us to engage with an emerging pharmaceutical company and quickly provide fully outsourced revenue management to enable them to deliver their life-changing products to the world. Another terrific example of business services enabling a growth company is at United Therapeutics. United Therapeutics is an existing Model N customer and needed help dealing with the increasing complexity of state price transparency regulations. To address this need, this customer selected our newly released State Price Transparency Management Business Services offering. This solution will enable United Therapeutics to accelerate their path to compliance and to ensure that their future state price compliance needs will be properly managed, regardless of the changes in regulations. Moving on to SAS transitions, during the quarter, we signed one of our few remaining SAS transitions with Teva Pharmaceuticals. Teva is the global leader in generic drug manufacturing, supplying affordable medicines to nearly 200 million people across six continents every day. This deal extends the 20-plus year revenue management partnership between our two companies. Our SaaS platform will allow Teva to more easily take advantage of innovations and to operate more efficiently while maintaining compliance. Turning to high-tech, this segment continues to show green shoots and posted a strong Q1 that included customer expansions and two new logo wins. The first new logo is Taiwan Semiconductor, a multinational semiconductor design and manufacturer that also owns the world's first dedicated semiconductor foundry. Taiwan Semiconductor is planning to grow their business globally, especially through their distribution channel, but they are limited by a combination of manual and homegrown systems. They needed a platform to build a consistent global approach to pricing, quoting, and point-of-sale integration. After a thorough evaluation, Taiwan Semiconductor chose Model N's channel data management and revenue cloud to automate these key processes to support their future growth. We also signed another new logo in high-tech with a company that designs and manufactures power conversion, measurement, and control solutions that are used by a wide variety of industries. During our sales cycle, we worked with the customer to identify significant operational improvements using Model N that will result in efficiencies in pricing strategies and a meaningful reduction in revenue leakage. This customer also plans to use Model N as an enabler for future acquisitions given that Model N will allow them to quickly implement key channel incentive and pricing strategies into the newly acquired business. It is gratifying to see both of these new high-tech customers turn to Model N as a strategic partner to enable their growth strategies. Turning to professional services, our team exceeded expectations with another strong quarter. The results of our professional services organization symbolize the strong demand for our mission-critical solutions as companies seek to drive top and bottom line improvements. Our professional services team continues to do a terrific job of getting new customers live on time and on budget. One project that I'd like to call out is Genentech and their successful SaaS transition to support their pharma business. Genentech is the latest example of our team working closely with a longtime customer with a very complex configuration and successfully moving them to our cloud platform. This project also includes the implementation of our proprietary testing suite that helps pharma companies more easily maintain compliance with internal audit, while also being able to quickly adopt innovation and regulatory updates. Again, congratulations to Genentech and our services team for achieving this important milestone in our relationship. As we focus on future growth, we continue to build new products in collaboration with our customers. One recent example is price management for high tech, a new product that enables manufacturers to simultaneously manage price execution across direct and indirect channels globally. This new module is fully integrated with our deal management product and streamlines pricing updates to enable tight pricing control and real-time market execution of changes. Finally, earlier today, we issued our new 2024 State of Revenue Report. This marks our sixth annual report, which identifies the top challenges and opportunities for pharmaceutical, medtech, and high-tech manufacturers. This report is based on the results of a survey of more than 300 C-suite executives directly responsible for revenue management. Three themes stand out to me in the 2024 report because they reflect the dynamic operating environment that has become the new normal, and each is something that Model N can help our customers address. The three themes are executives name process efficiency and cost savings as top priorities in this operating environment and are increasingly looking to advanced analytics and AI to achieve these priorities. For a second year in a row, supply chain disruption emerged as one of the top obstacles across all industries. And finally, pharmaceutical executives do not see the pace of regulatory change slowing down anytime soon. These insights help us better understand how to tailor our solutions to empower our customers to create and bring their life-changing products to the world. I encourage all of you to read the 2024 State of Revenue Report by downloading it from our website at modeln.com. Let me conclude by saying that I'm pleased with our continued execution, and I am proud of the leverage we're showing on our bottom line as we navigate the end of our business model transition. We are also posting tangible proof points that our long-term growth levers of new logos, customer expansion, and product innovation continue to mature and are materially contributing to our bookings. I'd also like to thank model owners around the world that continue to focus on customer success, our Darapora values, and driving profitable growth. Because of you, we kicked off the year with a solid Q1, and I am excited about the year ahead. With that, I'll turn the call over to John to discuss our Q1 financial results and offer our outlook for Q2 and fiscal 2024.

John? Thank you, Jason, and good afternoon to everyone on the call today. As Jason noted, we had a very solid start to fiscal year 2024 with Q1 results exceeding our expectations for revenue, adjusted EBITDA, and free cash flow. I was particularly pleased by our free cash flow performance, which hit $43.5 million for the trailing 12 months ending Q1 and was up 172% on a year-over-year basis. Looking specifically at our financial results for the first quarter, total revenue grew 7% to $63.5 million, which exceeded the high end of our guidance range, driven by upside on both subscription and professional services revenue. Subscription revenue increased by 8% to $47.7 million, while professional services revenue grew by 6% to $15.8 million, and both were above guidance. In terms of our profitability, please keep in mind that we will be discussing non-GAAP numbers and a full reconciliation of our results is provided in our earnings release. For the first quarter, total non-GAAP gross profit was $38.3 million, representing a gross margin of 60.3%. Non-GAAP subscription gross margin was 68.4%, and non-GAAP professional services gross margin was 35.8% in Q1, in line with Q1 of last year. Adjusted EBITDA was $9.9 million, representing a margin of 15.5% and above the high end of our guidance range for the quarter. And finally, non-GAAP earnings per share was $0.28, based on a fully diluted shares outstanding of $39.1 million. This was slightly below our guidance due to some variance on below the line items, including interest income and foreign exchange. Turning to our SAS metrics for Q1, our SAS ARR reached 134.8 million, which was an increase of 19 million or 16% versus Q1 of last year. In addition, trailing 12-month SAS net retention was 115% in Q1. These results were right in line with our expectations. As we discussed on last call, we are facing difficult comparisons for our SAS metrics over the first two to three quarters of this year due to SAS transition activity last year. Next quarter, our fiscal Q2 is expected to be the most difficult comparison. However, we do expect growth to trend back up at the end of fiscal 2024 when we get back to more normal year-over-year comparisons. In terms of the balance sheet, we ended Q1 with $303 million in cash and equivalents, which was up $2 million sequentially from September. We also had sequential increases in accounts receivable at $83 million for Q1 and deferred revenue at $74 million for Q1, both due to a record quarter of invoicing. Finally, as mentioned, Q1 was a very strong quarter from a free cash flow standpoint. this trailing 12-month free cash flow increased to $43 million from $23 million last quarter. Turning to remaining performance obligations, our total RPO for Q1 was $349 million, which was up 3% on a year-over-year basis. The current portion of our RPO balance was up to $160 million, representing growth of 11% year-over-year and up 8% sequentially from Q4. As I have previously noted, our total RPO growth has been impacted over the last few years by long-term SaaS transition deals, many of which had contract lengths well in excess of three years. As renewals and other non-SaaS transition bookings become a bigger proportion of the total, we are seeing our average contract length and RPO return to a more normalized level. Looking ahead, as we said on our last call, we are still in a period of business model transition during fiscal 2024, our solid growth in SAS revenue will be partially offset by declines in maintenance revenue. Once we are completely through SAS transitions and the business model normalizes, we believe that we can return to double-digit total subscription growth over the medium term. And I would refer you to the investor deck on our website for more details on our midterm financial targets, which we outlined on our last earnings call. In terms of our guidance for the remainder of fiscal 2024, We are raising our outlook for subscription revenue and total revenue, reflecting our subscription performance in Q1, and maintaining our guidance for adjusted EBITDA and non-GAAP earnings per share, which calls for continued margin improvement versus last year. Specifically for fiscal 2024, we expect total revenue to be in the range of $260.5 to $263.5 million, with subscription revenue in the range of 193.5 to 195.5 million, and professional services revenue to be in the range of 67 to 68 million. We expect adjusted EBITDA to be in the range of 48 to 51 million, and non-GAAP EPS to be between $1.25 and $1.32 per share, based on a fully diluted share count of approximately 40.1 million shares. For the second quarter of fiscal 2024, we expect total revenue to be in the range of 63.5 to 64.5 million, with subscription revenue in the range of 48.5 to 49 million, and professional services revenue in the range of 15 to 15.5 million. We expect adjusted EBITDA to be in the range of 9 to 10 million, And for non-GAAP EPS, we are expecting a range of 24 to 27 cents per share based on a fully diluted share count of approximately 39.7 million shares. As a reminder, there is some seasonality to our business, and our second fiscal quarter is the period when we see increased expenses for payroll taxes and other benefits. As a result, the second quarter is typically the low-water mark for adjusted EBITDA margin during the year. To summarize, Q1 was a strong start to fiscal 2024, and we continue to execute well. We're getting through the final stages of our business model transformation, while at the same time still driving top-line growth, margin improvement, and strong free cash flow. With that, I'll turn the call over to the operator for any questions. Operator?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for questions. First question comes from Ryan McDonald with Needham & Company. Please go ahead.

Thanks for taking my questions. Jason, maybe to start, you know, great to hear about the bookings commentary and obviously the continued progress on the SAS transitions. You noted in your remarks sort of this confidence in returning, you know, the double-digit growth, you know, and sort of growth improvements as we get into the later parts of the year. Once the difficult comps sort of pass through, I guess early in the year as you're sort of having pipeline building discussions and start to see some of that progression, you know, can you talk about what the environment in terms of spending environment is that gives you confidence sort of in that trajectory? And, you know, in regards to the SaaS transitions, as we've now passed over the end of support date, how has the conversation shifted with the remaining customers?

Yeah, good series of questions in there, Ryan. So first of all, on the macro environment, I think we were one of the first companies in our space in our fiscal Q2 last year to call out some deal elongation cycles and delayed SaaS transitions and a little bit of softness and discretionary spend. As the year went on, we subsequently followed up that commentary with statements indicating that we didn't see the demand environment deteriorating anymore. I think as we come into this year, we feel like we're in a more stable environment, particularly as the market has a better sense on things like interest rates and some of the other key metrics. I would say that the backdrop has not deteriorated, and I also think in our particular corner of the world, things like regulatory changes continue to drive demand. And then in terms of, you know, as I look at our pipeline this year, one of the things that I'm encouraged about, and you see it in our reported results, we are expecting to have a nice contribution from new logos as well as our customer base. And you certainly see that with some of the new logos posted in Q1, and we have a good pipeline as we look forward this year. And I also would say a great team on the new logo side. And then I mentioned this on our last call as well. For the best part of last year, we had a lot of customers that were in the middle of the past transitions. And as we get into this year, we have essentially the full base starting to come back to us and really presenting the full opportunity to sell into the base for the best part of that. And then in terms of now that we're officially past end-of-life on December 31st, when I look at our customer base now, as we reported on our last call, we're more than 80% converted or in process of converting. I mean, we're literally talking about a handful of customers, and we have really good visibility into when those customers will convert. And we're also a strong partner because we said, hey, when they've got a roadmap and a path to move forward, we'll continue to support you even while you're in transition, even though the support for on-premise has lapsed. And that's been a message we'll receive by our few remaining customers that are transitioning.

That's great to hear. Maybe just as a follow-up on product, great to see the launching of price management within sort of the semiconductor and high-tech arena today. I'm just curious, as you think about the rollout of this offering to that segment of the customer base and the adoption curve, how do you expect that to compare relative to pricing management that you had on the life sciences side? And forgive me for not knowing, but is there any sort of regulatory impetus on the high-tech side that you might lend support like you got on the core life sciences business? Thanks.

Yeah, good question. So this particular new product on the high-tech side is not something driven by any regulatory changes. It's really to address the need that we've partnered with a couple of customers to build where oftentimes the price book and market, the price book of where prices are stored and some of the dynamics of the time of the market where competitors are discounting the cash and can take a commercial time to get to the front line and enable sales reps to be in compliance with internal policies yet also address some of the real-time competition that they see out there. So this is a product that is, I mean, think of it as a complement to our deal management product and was built in conjunction with a couple of customers. And by the way, this is also something that had been asked for by other customers, so I think it's going to be very well received. We've got a customer advisory board coming up in a few weeks where we'll demonstrate this product. We've got Rainmaker coming up here in June, which will be here before we know it. And between that and the standard enablement we're doing with our sales force, I'm excited about this product and I think it's really going to make a difference, particularly in these segments like semiconductor where margins are so laser-thin.

Appreciate it, the caller. Thanks for taking my questions.

Next question comes from Joe Brewick with Baird. Please go ahead.

Great. Thanks for taking my questions. Jason, I wanted to go back to the Bayer win. You mentioned in the comments they're thinking about future pipeline and wanting to ready the right technology around the business strategy with this pipeline. I think over the past year, the feedback from a lot of vendors serving pharma has actually been kind of the opposite. We are hearing from customers, they don't know what the pipeline is going to bring, and so they're kind of delaying new tech decisions. Not to put words in your mouth, but this seems more like offense at your customers. Is that maybe more pervasive, you know, is it beginning to become more of a offensive decision-making process? And if that's true, what sort of Model N solutions might actually start to register an uptick relative to what the prevailing experience has been?

Joe? Thanks for the question, Joe. Can you hear me? I've just been told we're having some audio issues.

So far, so good. You were breaking up earlier, but I hear you now.

Okay, wonderful.

Yeah, so, you know, this question of drug pipeline and customers playing offense or defense, I think, is an interesting one. Some customers certainly have robust pipelines and a unique growth opportunity in front of them. Bayer is certainly one of those. Obviously, if you've been following Bayer in general in the In the news, they're going through a bit of a business model transition on their own, and I think making strategic evaluations on different parts of the business, this isn't anything confidential. It's obviously been well-reported in the business trade with Roundup and the Monsanto acquisition. But certainly, in terms of how they're partnered with us, they're really excited about their pharma business and and who have a good pipeline that differentiates them from some of their other partners in the industry, but they certainly do have a good pipeline of drugs coming up that they've been talking about. And Bayer is one of those companies that I guess had kind of neglected revenue management, and they're an SAP customer, and they had quilted together a revenue management solution that was some SAP stuff, some custom stuff, some manual stuff, And I think they finally got to a point where they just said, hey, there's so much ROI here and so much leakage that's happening and so much infrastructure we're going to need as we're reinventing the company and refocusing on pharma and some of these launches. Let's turn to the industry leader. And so, of course, we were the beneficiary of that. I think the other important point I would mention on Bayer, they basically bought our core footprint to help with commercial and government pricing. And there is also, I think, a pretty interesting set of additional areas where we can help them after we get them live on this initial phase, additional modules in the U.S. plus potential international expansion. So we're excited to welcome Bayer to the Model N family, and I think we can really help this iconic brand.

Okay, that's great. And I want for John, you know, SAS ARR up 16% in one queue. slower than that in 2Q just because of the comps and then trending back up towards year end. Should we make the read that therefore 4Q SaaS growth is faster than what you just did in 1Q? And, you know, so far in terms of your CRPO bookings and Where the pipeline stands, you know, is everything still kind of supportive of that outlook for a stronger second half of year?

Yeah. Can you hear me okay? We're struggling with the audio connection. You're a bit quiet. All right. Any better there? Yeah, much better.

Okay. So, yes, in terms of the SAS ARR metric in Q1 and then also the outlook for the year, the comments are correct. We did have a little bit of pressure on the year-over-year growth in Q1, and we expect that to be an even more difficult comparison in Q2 when you look at last year. I believe we're up 40% year over year for that number, and so it's a pretty tough comp for Q2. But then after Q2, we can see a path towards improving metrics over the second half of the year and closing out the year at a higher level. We'll still have to book some business between now and then, but we feel like we've got a decent line of sight in terms of how that metric is going to perform over the course of the year.

Okay, great. Thank you very much. Yep.

Next question, William McNamara with BTIG. Please go ahead.

Hi, guys. This is Bill on for Matt. Wanted to follow up on the price management tool and tech question. Is there any insight you can give us about kind of the total addressable market you're seeing for this product?

Yeah, so, I mean, we've talked about our high-tech cam being around And what we've found as we've been rolling out some of these new add-on products, they have the opportunity to provide anywhere from 10% to 30% uplift based on what an existing customer is paying us. So these smaller products that we're rolling out are add-on products, probably a better way to characterize them. really do have a meaningful impact on our TAM. And they also give us fresh new things that we can bring into our customers and address issues that are top of mind. So we're excited about this. And as I've said, I think in past calls, and this is no exception, every new product that we build, we're actually building it in conjunction with a handful of customers to make sure we get the usage patterns and functionality correct. For this product, we don't have the name rights to be able to actually say those customers But rest assured, this is being battle-tested with some customers. I think it's going to be really well-received as we share it with some of our customer advisory board companies that would be great candidates for it, as well as bring it to Rainmaker in a few months and demonstrate it.

Great.

Thanks for taking my questions.

Thanks, Joel.

Next question, Adam Hotchkiss with Goldman Sachs. Please go ahead.

Great, thanks for taking the questions. I'd be curious how you're positioning the Salesforce now that you're mostly past the SaaS transitions. Do you see a significant amount of capacity that's being freed up here for customer success and other expansion activity? And then how do you think that piece impacts net revenue expansion, if at all, over the next few quarters and into next fiscal year?

Yeah, thanks for the question, Adam. I'll take the first part of that. The same sales force that's been selling SaaS transitions then transitions on and sells add-on products or cross-sell, upsell. And the three sales motions that we've talked about for cross-sell, upsell are adding new products or expanding the footprint, moving into other divisions, or moving into new geographies. And so, as I kind of said, I think in response to one of the other questions at the top of the call, That team, the relationships that they've built going through SaaS transitions, I think uniquely positions them to identify these opportunities. And then particularly as customers get live and are stable in the cloud, it really opens up the full customer base to resell. Because we had a sales force that was really load balanced to handle SaaS transitions, and now some of the upsells. We haven't anticipated or we don't see the need for large investments in the customer-based sales force. One of the things I have talked about is that, you know, if you go back a couple years ago, most of our resources, or let me put it this way, our sales resources were disproportionately aimed at the customer base to make sure we didn't get stuck in the middle of the SaaS transition. We had to make some difficult tradeoffs as a result of that, And so new logo did suffer a bit in terms of investments in 21 and 22, but knowing as we went into 23 that we were coming to the end of SaaS transitions, we did start to invest more in building out that new logo team to bring a little more balance in our sales capacity. And it's nice to start the year with that team posting a great quarter and see that there's still a meaningful opportunity on the new logo side.

And Adam, this is John. I'll just chime in quickly on the net retention numbers. Just as a reminder, that net retention metric is going to track very closely to the SAS ARR growth rate numbers. So if you look historically, you'll see that's the case. And so this year, we're going to have tough comparisons for the net retention number, just like we do on the ARR growth rate. If I look out a few years, and if we look at the midterm target that we talked about on the last call, where you have SaaS growth in the 15 to 20% range. In that scenario, I would expect net retention to normalize in the low to mid-teens. So call it kind of the 110 to 115% range with the remainder of growth coming from new logo activity.

Great. That's really helpful. And then just on the high-tech side, it's good to see the momentum there with Taiwan Semi. Could you just remind us how we should think about the long-term mix of that business compared to life sciences and what the path forward looks like from here, given you're a little less penetrated there.

Yeah, so the revenue mix today is about 15% high tech in the balances on life sciences. And my guess is that mix doesn't shift materially over time just because of the flywheel that's spun up in life sciences. With SaaS transitions and then some of the add-on customer-based sales and, of course, new logos piling on top of that. That's not to say we're not excited about the high-tech business. You know, we did talk over the last couple of years during COVID and rising interest rates that market did seem to get disproportionately more conservative relative to life sciences. But it's exciting to see the performance in Q1, and I'm very optimistic about this segment of the business as we look forward to the second half. We've got great products, and we've got a really good high-tech team. So I think they're set up to have a great year.

Okay, really helpful. Thanks, Jason. Thanks, John. Thanks, Adam.

Next question, Craig Hettenbach with Morgan Stanley. Please go ahead.

Yes, thank you. Jason, just going back to the cloud transitions, can you give a rough sense of how many customers are remaining? And then importantly, what type of indications through discussions do you hear from these customers in terms of visibility that they'll move over through the course of the year?

Yeah, thanks for that one, Craig. Good question. So, you know, we have committed to updating investors on the status of SaaS transitions at the beginning of each year. So, you know, 85% at the end of last year. And that kind of implies we're down to roughly a handful of remaining customers and of that remaining handful, there's really only a couple of very large ones in there. And so the number is small enough that we can play man-to-man defense and have a really good sense in each one of these accounts when they're going to move. And I think we've got great visibility into how these customers move over through the remainder of this fiscal year. And as I said in response to one of the past questions, a good point just to clarify it again or reemphasize it, for these customers that are actively engaged in working with us, post end of life in December, you know, we are continuing to be a great partner to them, support them, and make sure we've got a great roadmap ahead. But we feel really good about the handful of remaining customers to convert.

Got it. And then just as a follow-up, I wanted to touch on data and analytics. At Raymaker, you talked about some new product developments. tandem with customers? I know it was early stages back last summer, but just, you know, kind of where do things stand today and what are your thoughts in terms of commercializing some of these products?

Yeah, that's also a great question, Craig. I think, you know, it's an interesting question in that some people say, when are we going to start to, you know, see data and analytics products being sold? And we already have great examples of products that fit that category for us today. Things like global price management, global launch excellence, 340B vigilance that are products that are getting a lot of attention from prospects and customers today. But specific to your question, last year, last summer at Rainmaker, we announced two new products, formulary access and syndicated customer master. And we're well on our way to delivering those products. We've got them slated for release in Q3 of this year. And both of those products also are being co-developed with us by top 20, top 50 pharma companies. So I think we're getting really good insight into the problem statement and what really matters to these customers. Formulary access is just ensuring that the hundreds of millions of dollars of patient access fees that pharma companies pay, that they're actually getting that access. It's remarkable today. This isn't really being audited. It's manually spot checked for some of the bigger therapies. But we'll provide a solution that will provide full coverage on formulary access audit. And then the second is what we're calling syndicated customer master. And think of this as an industry gold copy of the payers and the providers and the different purchasing programs that they're eligible to participate in with the manufacturers. Solves another big, big pain point. as well. So we're on track to deliver those two products and looking forward to it. And thanks to our customers, we've had a great group guiding us through the development lifecycle over the last three, four quarters.

Great. Thanks a lot. Thanks, Fred.

Next question, Samad Samad with Jefferies. Please go ahead.

Hi. Good evening. Thanks for taking my question. Maybe first on Just the 2Q guidance, and if you could remind us, I think it implies that professional services revenue will be kind of flat-ish quarter over quarter. If I look back at historical seasonality, you get a bit more of an uptick. Can you just remind us about the seasonality and if there's something that we're missing, just thinking through the guidance?

Yeah, no, this is John. I'll take that one, and it's a good question. So you are correct. Typically in Q2, we see a little bit of an uptick from a seasonal standpoint in this business. However, This quarter, we're having a little bit of a challenge with a small handful of projects that we can't get underway. And so we're ready to go, but the customers aren't quite ready. And so we've had a few delays in Q2. And so it's basically some timing issues that we think we can fix over the course of Q3 and Q4. I would note that that business actually had a record quarter of bookings in Q1. So we exited Q1 with very strong backlogs. We just have a little bit of a timing issue in Q2 here.

Understood. That's helpful. And then maybe zooming out, just you mentioned bookings and I was going to ask in a slightly different way. I know you said the revenue mix shouldn't change materially between life sciences and high tech, but when you think about this year, do you think that high tech will increase as a mix as a percentage of the bookings, just given the strength that you saw in the first quarter? or any tilt that you're seeing versus what you'd normally see mix-wise, and how does the pipeline compare, even if we're not thinking into revenue conversion yet?

Yeah, when we take a look at, in terms of the bookings mix as well as the revenue mix, I don't see there being a tectonic shift in either, including bookings. I will say this, and you see it with our color commentary on Q1, We have definitely seen high-tech improve as an end market over the last 12 to 18 months. And we started, I would say a year ago, we started to see our existing customers expanding their relationship with us and expanding usage of Model N. And then it's been encouraging to see that new logo pipeline build and matriculate through to two new logos in the quarter.

Great. Thanks for taking my questions. Thanks, Samad.

Next question, Brian Peterson with Raymond James. Please go ahead.

Hi, team. This is Jonathan to carry on for Brian tonight. Thanks for taking the question. So, I have a question on some of the midterm targets. So, that 15 to 20% subscription growth in the midterm with, I think you mentioned, low teams coming from expansion. I'm just kind of curious, do you think that's a reasonable goal with your current product portfolio, or is that going to require more organic or inorganic investment needed to drive that kind of longer term?

Yeah, this is John. I'll chime in that, you know, that is largely based on what we have today. You know, we're on the brink here of rolling out additional products and data and analytics, and that would ultimately factor that into those numbers in a few years as well. But I would say it's predominantly selling what's on the truck today.

Got it, got it. And then on the international opportunity, that's still kind of been in that mid-single digits range. Would you expect that maybe to shift over time? And what are some of the key gating factors to expanding internationally?

Okay.

Well, so I guess this is actually a really interesting question. So if you look at most of our customers today, they are global pharma companies, and we've opened them in their U.S. operations. Some are headquartered here, some aren't. But nearly all of them have operations in EMEA just by definition of being large global pharma companies. The thing that this has allowed us to do is we have actually worked with a number of these customers in partnership to build a couple of great products that I would say are functionally complete today, like global tender management and global price management. And then I suppose you could add a third on global launch excellence, which Apellas took this quarter to complement global price management. So this motion of servicing and selling to North American global companies has allowed us to partner with them With to build out products that are that are functionally complete for the European market I think like most companies as they start to move into other geographies Sales coverage is always one of the things you have to tackle We do we have started to invest in some headcount in region We also try and tag-team the region with global accounts because a lot of the purchasing decisions do involve folks in the US so So I'm excited about the products we have, and really just over time is about scaling and making sure that we've got the right selling motions and sales coverage in the region.

Thank you.

Thanks, John. Next question, Pat Walbraven with Citizens JMP. Please go ahead.

Hi, this is Aaron Kimson. I'm for Pat. Of the 15 customers that accounted for about 53% of your revenue on September 30th, how should we think about where they are in their cloud transition relative to the long sales customers that account for the other 47% or so of your revenue? Thanks. Yeah, this is John. So I think you're referring to the disclosures in the Qs and Ks about the top customers. I would say a high percentage of those have either completed or in process on SAS transitions. And so that number is typically calculated on a total revenue number, which would include both subscription and services. And so companies that are underway in a SAS transition may be showing up on that as well.

Got it.

Thank you. I would like to turn the call over to Jason Blessing for closing remarks.

Thank you, Operator, and thank you, everyone, for joining us today. As we discussed on today's call, we started out our fiscal 2024 with a good quarter and once again delivered strong, profitable growth. I really appreciate all of our employees, customers, and partners for supporting us, and thanks again for joining us today, and have a wonderful night.

This concludes today's teleconference. You may disconnect your lines.