Model N Inc (MODN) 2015 Q4 法說會逐字稿

Greetings, and welcome to the Model N fourth quarter FY15 financial results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Sheila Ennis. You may begin.

Good afternoon, and welcome to the earnings call for Model N's fourth quarter FY15, which ended on September 30, 2015. With me today are Zack Rinat, Chairman and Chief Executive Officer, and Chief Financial Officer, Mark Tisdel.

Our press release was issued after the close of market, and is posted on our website, where this call is being simultaneously webcast. The primary purpose of today's call is to provide you with information regarding our fourth quarter and our full FY15 performance, in addition to our financial outlook for the fourth quarter and the full FY16.

Commentary made on this call will -- may include forward-looking statements. These statements are subject to risks, uncertainties and assumptions. Please refer to the press release, and the risk factors in documents filed with the Securities and Exchange Commission, for information on risks and uncertainties. Should any of these risks or uncertainties materialize, or should our assumptions prove to be incorrect, actual Company results could differ materially from these forward-looking statements.

In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures, which are used as measures of Model N's performance, should be considered in addition to, not as a substitute for or in isolation from, GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results, in our press release.

At times, in response to your questions, we may offer incremental metrics to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that this additional detail may be one-time in nature, and we may or may not provide an update, in the future, on these metrics.

I encourage you to visit our investor at investor.modeln.com, to access our fourth quarter and full FY15 press release, periodic SEC reports, and the webcast replay of this call. Finally, unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our FY14, which ended on September 20, 2014.

With that, let me turn the call over to Zack.

Good afternoon, and thank you for joining us today. I will start the call today with a summary of Q4 FY15 and FY15 as a whole, and then present our strategy for FY16 and beyond. Model N executed well in Q4 2015, exceeding our guidance on both the top and bottom lines. Mark Tisdel, our CFO, will follow me with the financial details.

We made excellent progress on executing our strategy to concurrently grow our revenue and to transform our business to SaaS and recurring revenue. Model N grew fourth-quarter total revenue 25%, and SaaS and maintenance revenue 37%, versus Q4 FY14. We reported 67% of our total revenue as SaaS and maintenance revenue.

Q4 marked the end of a strong year. Model N grew both sequentially and year over year, in every quarter of the fiscal year. The results of the last quarter and the last year are early strong indicators that our vision and strategy are right on the mark.

This last year, we accelerated the transition of Model N into a cloud company. As such, we transformed every aspect of our business. First, we changed the way we engaged with our customers. We branded these efforts as the Rainmaker XUP.

Rainmaker XUP is a programmatic approach to connecting, communicating and engaging with our customers. Rainmaker X is our executive sponsor group. Rainmaker U is our collective global user groups. And rainmaker P is our product group.

In FY15, we held 10 Rainmaker XUP meetings with our customers. We received strong positive response from our customers, citing better engagement with Model N.

Second, we transformed the way we develop and deliver products, as well as the way our customers consume these products. Last year, we announced revenue management as a service, which is a strategy and solution to move our install base from the current on-premise deployment to SaaS.

In addition, we released three seasonal releases of Revenue Management Cloud, including [Sammel 15], which was released in Q4 FY15. An example of the transformation in Q4 was the extension of our relationship with the Internet of Things, or IoT group. Intel is leveraging Model N to build a sophisticated and agile revenue management platform to help scale their business.

Our revenue enterprise cloud will enable the IoT group to price and quote based on a bundle of silicon, software and services, while managing incentives such as rebates and market development fund. In addition, our revenue intelligent cloud will enable Intel to analyze and optimize their revenues via sophisticated analytics.

Third, we released several new cloud applications. We released Revvy Sales, the first CRM solution for the semiconductors and components industry. Revvy Sales combines the best of both worlds, Salesforce, sales cloud and Model N deep vertical expertise, to deliver a vertically focused solution for CRM, and one that is fully integrated with our Revenue Management Cloud.

We made good progress in FY15, signing companies such as Atmail. And in Q4, we signed MACOM Technology Solutions, a developer of radio, microwave and millimeter wave semiconductor devices and components. MACOM is based in Lowell, Massachusetts, with annual revenues of $420 million.

They will leverage both Revvy Sales and Revenue Management Cloud suite for high-tech, including deal management, deal analytics and channel management. Revvy Sales and Revenue Management Cloud will enable them to replace the current system, a manual, disjointed, spread-based quoting, pricing and commissions processes, with an end-to-end, unified, enterprise-grade CRM and revenue management process and platform.

In Q4, we announced Revvy Revenue Management at DreamForce, the first Salesforce native, enterprise-grade revenue management application suite. Revvy Revenue Management is comprised of five applications: Revvy Configure Price and Quote, or Revvy CPQ; Revvy Global Price Management, or Revvy GPM; Revvy Compact Life Cycle Management, or Revvy CLM; Revvy Rebate and Revvy Intelligence.

Revvy Revenue Management embodies 16 years of experience working with some of the most innovative global enterprises, to develop, deploy and scale enterprise-grade revenue management. Furthermore, Revvy Revenue Management is an outcome of an intense four years of architecturing revenue management to be both Salesforce native and enterprise-grade.

In the last quarter, we signed several customers that will be using Revvy Revenue Management applications. A top three pharmaceutical company selected Revvy GPM. They selected Revvy GPM for an enterprise-wide global deployment across all the divisions, which includes pharma, generic and medical device.

Revvy GPM will provide a single source of the [throughs] for global prices, pricing intelligence, launch sequencing optimization and international reference pricing. Corning Life Sciences and Nitto Denko, among others, signed agreements for Revvy CPQ.

Revvy CPQ is the lynchpin of Revvy Revenue Management. Revvy CPQ enables SaaS people to maximize their revenues and minimize nonproductive time, which is a particularly big challenge for those that sell complex configured products. Revvy CPQ leverages and exposes core elements of products from ERP systems, providing native inter-operability with SAP. Revvy CPQ was designed with performance in mind, using a technology that was proven to deliver lightning-fast response for the most complex and demanding configuration and world combinations.

Finally, we are excited to announce the acquisition of Channel Insight, a leader in channel data management, or CDM. Channel Insight enables Model N to accelerate our strategy for end-to-end revenue management application suite. The combination of Model N Channel Management and Channel Insight CDM provides companies with a leading enterprise-grade end-to-end solution to manage their global channel revenues.

We are excited to have the Channel Insight customers and employees join the Model N family. In summary, FY15 gives strong positive indicators to division, strategy and execution of Model N.

We are excited about the marketable potential for revenue management in FY16 and beyond. We believe in our strategy to capitalize on this opportunity, as we find ourselves in a very exciting time in our journey to enable global businesses to leverage revenue management as a competitive advantage.

We are in an era of major technological change, with the emergence of cloud computing, SaaS, social, mobile and big data, to name a few. This technologies create both challenges and opportunities for businesses, and in particular, for the way companies are connecting, interacting and engaging with their customers.

At the same time, enterprises are focused on creating shareholder value by delivering financial results that are centered on top-line revenue growth. These two trends are converging quickly, as revenue management becomes a catalyst to transform customer relationship into improved financial results, by enabling enterprise to maximize revenues and revenue growth.

Thought leaders believe that the most impactful way to achieve competitive advantage, and to rejuvenate the business model, is to focus on revenue growth. We believe that the first stage for businesses will be about unification of CRM and revenue management, or RM. The outward-facing suite that enabled digital transformation, including mobile, social, e-commerce and multi-channel sales. This is not just about integrating CRM and revenue management, but much more bolder concept of unification.

In this stage, enterprise will unify internal data from CRM, RM and ERP, as well as channel and external market data, in order to create a multiplier effect that is an order of magnitude greater than the sum of the parts. As CRM and revenue management are unified, with CERP still playing a major role as the core internal system of record for traditional financial processes, orders and core manufacturing. And this is likely to be the ideal landscape for some years to come.

We see strong demands for revenue management in our core verticals, and with the broader manufacturing industry. As an example, we now have 9 of the top 20 pharmaceutical companies leveraging Revvy GPM to manage their global prices.

Our strategy in FY16 is to invest to continue our leadership position in life sciences and high tech. Capitalize on the unification of CRM and RM, while completing the transformation of the Company to SaaS and recurring revenue.

We are aligning the internal incentives with annual recurring revenue, or ARR, in our internal management metric sales with SaaS.

I am encouraged by the results of FY15, and am excited about FY16 and beyond. Let me turn the call over to Mark to discuss our financial results and guidance for FY16. Mark?

Thank you, Zack. In FY15, Model N accelerated the transition of our business model into SaaS and maintenance revenues. Our revenues are split into two lines on our income statement. Line one is license and implementation revenues, which include the perpetual license and the services that are associated with implementing these licenses. Line two is SaaS and maintenance revenues, which include maintenance and support related to the perpetual licenses.

In FY15, we had approximately 61% of our total revenue, or roughly $58 million, recorded in line two as SaaS and maintenance. This represented growth of over 24% over FY14. The remaining 39% of our total revenue, or roughly $36 million, was recorded in line one as license and implementation, and grew 2% over FY14.

The trend toward SaaS and maintenance revenues accelerated throughout the fiscal year. As Zack mentioned, in Q4 of FY15, 67% of our total revenues were line two, SaaS and maintenance. We are accelerating the transition of our business model into recurring revenues in FY16 and beyond.

We believe in this strategy for the following reasons. First, there is wide acceptance of SaaS as the preferred consumption model, even in a highly regulated industry such as life sciences. The fact that 9 of the top 20 pharmaceutical companies are managing their global prices on Revvy GPM, which is our SaaS solution based on the Salesforce platform, is a strong testament to the wide adoption of SaaS.

Second, our entire product line is offered as SaaS, and we enabled our customers to move from on-premise to revenue management as a service. In addition, all of our new products, such as Revvy Revenue Management and Revvy Sales, have been developed only on the SaaS platform, and are offered only as SaaS.

Third, we have noticed a significantly higher customer satisfaction with customers who are using SaaS solutions. This customer satisfaction has been demonstrated in our annual customer satisfaction survey, and in our renewal rates, which have exceeded 95% over the last few years.

Our guidance for FY16 is to increase our line two SaaS and maintenance revenues to approximately 80% of total revenue, or $85 million to $86 million. This would represent a 47% to 48% year-over-year increase of SaaS and maintenance revenues.

Our guidance for line one, license and implementation, is approximately 20% of total revenues, or $21 million to $22 million. This is a 39% to 42% year-over-year decrease of license and implementation revenues.

The decline in license and implementation revenues in FY16 is driven by the fact that in FY15, we successfully completed a number of significant multi-year license and implementation projects. Upon project completion, we recognized revenue that had been deferred. In FY15, we recognized approximately $7 million of deferred revenue related to project completions.

The shift in our business model will have short-term impact on the timing of revenue recognized, and therefore profitability, as we continue to transition the business. For FY16, we estimate that we will recognize less than $700,000 of deferred revenue related to project completions.

As the majority of the $7 million of deferred revenue recognized in FY15 dropped to the bottom line, the EPS impact was a positive $0.27 per share, based on an average share count of 26 million shares. With the acceleration of SaaS-based revenue -- with the acceleration to the SaaS-based recurring revenue model, we will no longer have this revenue related to project completion activities.

As we exit FY15, we believe the Company is on the right path to establish our stated goals of returning to historic growth rates, increasing the percentage of recurring revenue, and driving the Company towards long-term profitability. We'll share further details on the long-term business model at our analyst day tomorrow.

As the migration to recurring revenue continues, we are including two additional annual metrics in our guidance. The first metric we are sharing is SaaS annual recurring revenue, or ARR. We feel this metric demonstrates the strong progress we made towards our financial goal.

The second metric is revenue coverage, which we feel is a helpful metric in demonstrating the bookings to revenue conversion in our business model. As mentioned, we'll give guidance on these two metrics annually.

Moving on, let me now outline our initial guidance for FY16, and for the first quarter. For FY16, we expect total revenues to range from $106 million to $107 million. This includes approximately $7 million of revenue from Channel Insight. This represents 13% to 14% year-over-year growth.

The ARR is expected to range from $34 million to 35 million, an increase of 75% to 80% over FY15. The revenue coverage for FY16 is approximately 75%. This includes deferred revenue, plus booked but not invoiced revenue we expect to recognize in FY16, the total of which we call backlog.

Non-GAAP loss from operations in the range of $17.8 million to $17.3 million, non-GAAP net loss per share in the range of $0.66 to $0.64, based on a weighted average share counts of 27.1 million shares.

We expect our ending cash balance at September 30, 2016, to be between $70 million and $72 million. This includes cash utilized in the acquisition of Channel Insight, which was closed in the first quarter of FY16.

For the first quarter ending December 31, we expect total revenues to range from $24 million to $24.2 million. We expect roughly 77% of our Q1 revenues to be SaaS and maintenance.

Non-GAAP loss from operations is expected to be in the range of $4.8 million to $4.6 million. This would lead to a non-GAAP net loss per share in the range of $0.18 to $0.17, based on a weighted average share count of 26.8 million shares.

Now let's walk through the financial results of Q4 2015, and FY15 as a whole. Total revenue for the fourth quarter was $25.4 million, above our guidance range of $24.6 million to 24.9 million, and representing growth of 25% compared to $20.3 million in Q4 of FY14.

Within total revenue, license and implementation revenues were $8.4 million, and SaaS and maintenance revenues were $17 million for the quarter. The mix of revenue in Q4 was 67% SaaS and maintenance versus 33% license and implementation, an improvement from 61% SaaS and maintenance versus 39% license and implementation in Q4 of 2014.

The transition to SaaS and maintenance model has continued to progress strongly, and this quarter represents the highest percentage of SaaS and maintenance revenue in Company history, for the second consecutive quarter. SaaS and maintenance revenue in Q4 FY15 have grown over 37% from Q4 of FY14.

Before I move on to profit and loss items, I want to the remind you that my commentary will be focused on non-GAAP results. A reconciliation of non-GAAP to GAAP results is provided with our earnings press release issued earlier today.

Gross profits for the fourth quarter were $14.3 million, compared to $11.8 million in a fourth quarter of FY14. Similar to recent quarters, gross profit in this quarter included the impact of roughly $600,000 from the amortization of capitalized software that began upon the launch of our Revvy CPQ product.

Overall growth margin in the quarter was 56%, compared to 58% in Q4 of last year. As we stated in the past, quarter-to-quarter variability in gross margin is to be expected, depending on the mix of revenue and other factors.

Research and development expense was $4.3 million, compared to $4 million in Q4 of FY14. We are investing to further expand the breadth and depth of our product, and in particular, the Revvy products offering. We have capitalized approximately $700,000 in related expenses this quarter.

Sales and marketing expense was $7.1 million, compared to $6.8 million in the prior year's comparable period. This increase was driven by our continued investment in sales and marketing, (inaudible) to expand our sales coverage and continue to increase our sales pipeline. Q4 G&A expense was $4.6 million, compared to $4.1 million in Q4 of FY14.

Operating loss for the period was $1.7 million, compared to a loss of $3.1 million in the fourth quarter of last year, better than our guidance of an operating loss of $2.1 million to $2.3 million. Net loss in the fourth quarter was $1.8 million, compared to a net loss of $3.3 million in the fourth quarter of FY14.

This produced a net loss per share of $0.07, based on the share count of 26.5 million shares, an improvement from a net loss per share of $0.13 Q4 of last year, which was based on a share count of 24.9 million shares. This was better than our guidance of a net loss of $0.08 to $0.09 per share.

Adjusted EBITDA for the quarter was a negative $700,000, compared to a negative $2.3 million in the year-ago period. We ended the fourth quarter with $91 million of cash and cash equivalents, down from $93.8 million at the end of the third quarter of FY15. Again, please note the Channel Insight transaction closed in early Q1 2016.

At the end of the fourth quarter, our accounts receivable balance was $16.1 million, and our total deferred revenue was $24 million. As we stated previously, we do not believe our accounts receivable and deferred revenue balance are meaningful indicators of the business activity during any particular quarter, as the timing of invoicing under the contracts impacts these items, because we do not bill our customers up front for total contract fees.

For the fourth quarter, net cash used in operations was $2.9 million, which after adding CapEx of $300,000 and $700,000 of capitalized software, produces a free cash flow of negative $3.9 million. This compares to cash flow used in operations of $2.6 million in the fourth quarter of last year, which, after adding $300,000 of CapEx and $400,000 of capitalized software, amounts to a free cash flow of a negative $3.3 million.

Similar to prior commentary in regards to our receivable and deferred revenue balances, there can be some quarter-to-quarter variability in our cash flow, as it is impacted by the timing of invoicing under our contracts.

Our focus over the last year has been on revenue growth and the quality of revenue, or percentage of recurring revenue. We believe that we have made great progress in both areas. We will continue to focus on these goals in FY16.

We are also very conscious of ensuring we optimize cash utilization to drive value into the business. We'll provide additional insight into our strategy, progress and outlook tomorrow at the analyst and investor day.

We'll now open the floor for your questions.

(Operator Instructions)

Our first question comes from Nandan Amladi with Deutsche Bank. Please proceed.

Good afternoon. Thanks for taking my question. So Zack, the Channel Insight acquisition that you made, can you talk about what drove the decision? And also what sort of revenue model we'll see from that segment of the business?

Sure, Nandan. We look at our vision of the end-to-end revenue management solution. And when you look at the component of end-to-end revenue management, you need to have the ability to manage your direct revenues and your channel revenues. And so managing channel revenues is absolutely paramount, as the companies are leveraging channels in the way to grow their -- know their business.

And when you look at the component of a channel management solution, it's a combination of the transaction, the quoting, the contracting and all of the above. But also the ability to bring extra data from (inaudible) from the channels.

Just to give you an indication, channel data management was the number one, actually, request by our customers to add to the Model N suite. And that's where we looked around, and found Channel Insight, and we believe that Channel Insight is the great complimentary to Model N.

We conducted a very detailed due-diligence, including also a very detailed customer satisfaction, among their customers. And really liked what we see. In addition to that, we really believe that as we move forward, the ability to take data and turn data into information, turn the information into insight, turn the insight into action and into revenue, is going to be paramount.

And you look at the vision that we have for the way that we are driving right now, and our customer is driving right now, actionable insight, channel data, and adding a clean channel data, is absolutely critical. So our strategy is really to go and to provide single solution for channel management, that is going to include the end-to-end solution and the data, is part of the end-to-end revenue management suite. And the last thing that I want to talk about, their business model, so the business model is all centered around recurring revenues, and also something that we really liked a lot.

Is there any integration work involved? Or were you already working with this company?

We are working with the company. We announced the acquisition a couple of weeks ago, and we already closed it. So all their employees are now Model N employees, and we can offer this immediately as a solution to our customers.

Just to give you an indication, we have customers that are using already a both solutions, both in high-tech and in life sciences. For example, Intel is using both solutions, and then Corning Life Sciences, in the medical device, is also using both solutions. So for us, it's more of a solution that we can immediately go to market with.

Thank you very much.

Our next question comes from Terry Tillman with Raymond James.

This is Brian Peterson in for Terry. Just wanted to hit on the guidance, and understand the Channel Insight contribution. I know you gave the revenue number. But any help on what kind of margins that business had? And maybe how quickly was it growing?

And Mark, I know you gave the cash balance for the end of the year, but what was the price actually paid for the acquisition?

So Brian, we have not disclosed the price that we have paid for Channel Insight. As far as gross margins, and as far as bottom line contribution, they've run a very tight ship for a very long time period at the company. They've done a great job managing their costs. So you look at the business that has to run on a short amount of cash, and they've done a great job doing that. They've also done a great job building up their gross margin, as well, in the business. So it's something, as Zack indicated, we'll be able to integrate into the business model very quickly. And then it will be -- definitely will be accretive to us in the long run.

Okay. There enough. And then on the first-quarter guidance, I'm assuming the decline is mostly related to the license and implementation sales. Just trying to understand the timing of that. Is that decline going to be weighted to any particular quarter? Just trying to help us out there, on the model.

So you are correct. It is the transition of the business model from line one, which are license and implementation, to the line two model. The farther away you move from Q4, the less the license and implementation revenue will be, as a percentage of revenue. We do have some license and implementation projects going on that we'll be recognizing throughout FY16.

Okay. Last one for me. There's been a lot of M&A in the semiconductor sector, with some of your customers definitely involved in that. Any help on understanding what that does to sales cycles? And what you've historically seen, when there's M&A involved for customers in that space? Thanks.

So we see M&A activities in both of our markets, both in life sciences and semiconductors. And we see both industries accelerating, actually, the trend towards the M&A. When you look at this, it has a -- in theory, two effects. The one obvious one is that we have less targets in the industry. And at the same time, this is really something that pushes companies to look at their business processes and their system, and really ability to scale the business to the next level.

Furthermore, when we talk right now with our customers, they like the notion of optionality, which is really the ability to have a flexible revenue management platform that is going to enable them to integrate, but frankly also to divest some of their business. In general, M&A has been good to Model N in both industries. If you look at anything from the merger between Merck and Schering-Plough, both of them were on different revenue management systems, and then they leveraged Model N as a platform for integration.

If you look at the way that their own semiconductors have been using Model N over the years, as a way to integrate their (inaudible) acquisition, it's been very good to Model N. But it doesn't mean that we are always going to be on the winning side in M&A activities. But so far, it has been very good to us.

Thanks, Zack.

(Operator Instructions)

Our next question comes from Tom Roderick with Stifel. Please proceed.

Hey, guys. Good afternoon. Thanks for taking my question. Mark, wanted to just understand the impact of the move towards greater recurring and SaaS revenue here, particularly as it impacts the gross margin. So understand where this is impacting the top line.

How should we think about what the gross margin looks like for your business next year? Is it pretty fair to think about it in the same vein as where it's at right now? Should we model lower, higher? Just any guidance you can provide on that would be great.

Sure, Tom. So thank you for the question. We would expect to, as you model it out there, as we've talked about before, there is some variability from quarter to quarter into our gross margin, and you will -- we do expect to see that, as we move through FY16.

We expect to continue to improve our gross margins overall, as we move and exit 2015, it has become a higher percentage of line two revenues. But as you know, the line one revenue is a mix between license and services. And because it will have less -- as we go through time, less license revenue running through that line, you would expect to see the line one gross margin decrease towards the services gross margin number.

I see. (multiple speakers) Okay.

From a strategic point of view, when you look at the new emerging business that is going very nicely for our suite, the SaaS and recurring revenues. Another impact of this is that we are doing more and more work, actually, with system integrators, from the get-go.

And I feel that this is also going to be a good, positive impact to gross margins. Not in the short term, but over time, as we scale the business.

Got it. So there's a little push and pull on that line, on the gross margin line. But it doesn't sound like you are encouraging us to model that dramatically down, relative to where it's at right now?

Right. We're going to give further color on that tomorrow.

All right.

But you are right. You are right.

Okay. Great. The Channel Insight model, I understand what you just said, regarding it being predominantly a recurring revenue model. Is there much subscription revenue in that, or term license revenue in that? Or is that predominantly maintenance that will move into the mix on that front?

The way that I would encourage you to think about this product, as well as all of our products right now, think about it as basically as a subscription, as a SaaS subscription business. Which is, we basically are going to the market right now to sell basically channel management as a SaaS subscription, and that's what we deliver this to our customers.

Got it. Okay. One last follow-on. So I'm just playing with the numbers on the operating expense side a little bit here. And so I get that my assumption might be off. But if I were to model down to flat gross margins, I'm going to end up -- to get to your guidance on the operating income side -- probably around $80 million or so, give or take a little bit, for non-GAAP operating expenses for next year.

So that's almost a $20 million increase from this year, where last year was up $5 million, 6 million. So it was -- it sounds like you are projecting a pretty big increase in headcount and operating expense type of items. Where should we expect to see those items show up?

Is this a big Salesforce build? Is it a big R&D build? Is it new global regions you are trying to reach? What kind of guidance can you give us as to where that OpEx will be spent?

Sure, Tom. We're going to actually go in good detail on this tomorrow. So there's three areas. One is on the non cash side to the house. We capitalized over $2 million of software in FY15, whereas that number will be significantly less in FY16. So obviously, no cash impact to the business; it's just an impact to net operating loss. So we'll go through that tomorrow.

From an investment perspective, yes, we continue to invest into the sales and marketing organization. Zack talked a lot about the insight we have into opportunities, and the ability to pursue those opportunities, and the ability to create pipeline, especially around the Revvy product areas.

So we'll continue to invest in the Salesforce organization, to drive towards fulfilling our product needs as we move ahead. But we'll give some more color and insight on -- tomorrow on the call -- or on the meeting.

Great. Looking forward to it. Thank you.

Our next question comes from Sterling Auty with JPMorgan. Please proceed.

Thanks. Hi, guys. Let' s start with, I like that you gave us the percentage of SaaS and maintenance for this coming year. But how should we think, longer-term? Based on some of the commentary, are you no longer going to offer this under the license and implementation model? So will this move over to 100% SaaS over the next two or three years?

We really believe that this is the case. Starting from a strategy point of view, we need to provide our customers with choices. With the current solutions, we only offer our product as the SaaS solution.

But we have an install base. And until the install base is fully moved to revenue management as a service and to SaaS, in case that they need to -- either the customer will deliver no more product or services that are associated with this, we need to support them in their transition, and we need to be sensitive to them.

So the way that you can think about it is that all our new business, even in the previous year, it was actually SaaS and recurring revenues. But it's going to take some time until we're going to move the install base to revenue management as a service.

Okay. And then can you give us a sense of what the renewal rates were like in the maintenance, and in the SaaS components, of line two?

Yes. Sure, Sterling. I think we talked about it on the call today, Sterling, that we have seen rates above 95% for the subscription SaaS side of the business. And we took the historic rate for the maintenance support has varied between 95% and 100%, over the Company history. So the rates of our customer renewals have been very strong, especially over the last six to seven years.

But should we think about -- obviously, we're not only going to model FY16. But as we're thinking about the trends, how should we think about maybe those renewal rates declining, as you see more of your install base maybe starting to shift to SaaS, even more than what you've seen in the last couple of years?

I would look at this as a bundle, frankly, Sterling. And I would look at, basically, revenue management as a service, as an add-on to support and maintenance as a recurring revenue. And over time, they are going to be combined, potentially, into a single line. It's just a matter of packaging, not of actual value and delivery.

Okay, so we shouldn't actually try to maybe split out the maintenance piece? Because that was going to be the next question. How much of it, at this point, is maintenance and how much is SaaS? You are saying just continue to look at it as one bucket?

Yes. The way that I think about this is, as we move the transition, I would look at all of this business as basically recurring revenues. And again, from how we package this over time, we'd obviously bundle this, but not in the short term. So I would look at this as continuously recurring revenue.

Okay. And when you talk about the ARR metric that you actually gave guidance to for FY16, just so that I'm clear. So the $34 million to $35 million, is that ARR in the fourth quarter? So in other words, the annualized value of the contracts enforced in the fourth quarter annualized, and that's what you are calling ARR? Or how is that metric defined?

No, that would be the aggregate revenue for FY16. That would be associated with the SaaS subscription line. So it's only the subscription line of the SaaS that would be associated with that figure. It's not the exit MRR times 12; it's the aggregate of the ARR, as we move through the year.

But just for SaaS?

Just for the SaaS, just for subscription portion. Yes.

Yes.

Okay. So I guess I'm a little confused. So is that basically giving me what I was just asking? Which is, okay, within SaaS and maintenance, you are basically telling us that the SaaS component is $34 million to $35 million for the full year?

That's correct.

Okay. And last question. Can you give us a sense of what the quota carrying sales headcount looked like at the end of the year -- at the end of the fiscal year here, versus last year?

Yes. So Sterling, we did not disclose the number of salespeople. The only thing that we know we can say, that we are right now at the peak of the number of salespeople in the Company. And I think furthermore, we have scaled the SaaS organization throughout the year.

And when we started the year, we had basically all the salespeople that we needed to make a plan. That's been our strategy for a long period of time. But the people that we hire in the year are basically to create an outcome for the year after that, as a planning assumption.

Obviously, we'd like to do better than that. But we have, right now, we have scaled the SaaS organization, across vertical, across geographies, across product line. And we're still making an investment. And the talk is going to yield results for the year after that, but we don't plan on additional salespeople to make the plan that we just did discuss.

Right. Thank you.

There are no further questions. I would like to turn the floor back over to Zack Rinat for closing comments.

With that, let me just wrap up by saying that we look forward to sharing further details about our strategy, progress and outlook at the analyst and investor day tomorrow in San Francisco. For those of you that are unable to make it in person, we are going to webcast it. So you could look at the details at the IR portion of the website.

It's been a strong year for Model N, and we're looking forward to capitalize on the acceleration of revenue management and transformation of the business model in the next fiscal year. And we look forward to working with all of you. Thank you very much.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.