Model N Inc (MODN) 2016 Q3 法說會逐字稿

Greetings, and welcome to the Model N third-quarter FY16 financial results conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Sheila Ennis, Investor Relations for Model N. Thank you. You may begin.

Good afternoon, and welcome to the earnings call for Model N's third quarter of FY16, which ended on June 30 of 2016. With me today are Edward Sander, 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 third-quarter FY16 performance, our financial outlook for our fourth-quarter and full-year FY16, as well as our growth outlook for FY17.

Commentary made on this call may include forward-looking statements. These statements are subject to risks, uncertainties and assumptions. Please refer to the press release and the risk factors and documents filed with the Securities and Exchange Commission, including our annual report on Form 10-K and our quarterly reports on Form 10-Q, 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 relations website at investor.ModelN.com to access our third-quarter FY16 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 FY15. With that, let me turn the call over to Ed.

Thanks, Sheila, and good afternoon. Thank you, everyone, for joining us today to discuss Model N's third-quarter results. Model N executed well on our revenue and profitability targets for Q3 FY16. Total revenue for the third quarter was $27.9 million, up 18% from the same period one year ago, and surpassing the top end of our guidance range.

Q3 also marked the highest quarterly revenue in the history of the Company. We also exceeded our EPS guidance by $0.04 to $0.05 per share. We saw strong year-over-year growth in recurring SaaS and maintenance revenue, with $22.8 million or 82% of this quarter's total revenue being recurring SaaS and maintenance revenue. This is up from $15.3 million and 65% for Q3 just one year ago.

At the same time, we are lowering our most recent guidance for FY16 full-year revenue from a range of $106.5 million to $107.5 million, to a range of $106 million to $106.5 million. We are also lowering our year-end cash from a range of $70 million to $72 million, to a range of $65 million to $66 million. In addition, while it is still very early in the planning cycle, we currently anticipate that growth in total revenue for full-year FY17 will be less than our anticipated growth of an 11% year over year for Q4 FY16. We will share our complete guidance for FY17 in our November earnings call when we report on Q4 and FY16. We will also hold another Analyst Day during the week following the November call.

Now, there are three primary factors driving this change in our guidance. First, while we continue to see demand from new and existing customers for our cloud-based solutions, full-scale migration of existing on-premise deployments to the cloud, particularly by our life sciences pharma customers, have been below expectations. Second, our high tech business is performing below expectations, caused in part by go-to-market execution, which we believe we have addressed, and the impact of consolidation in one segment of our high tech business, the semiconductor segment.

Third, while our Revvy business had early traction, it is currently behind plan. We are fixing it, including adjusting our go-to-market approach. In fact, we announced a strategic partnership with SteelBrick, which was recently acquired by Salesforce in the third quarter. We remain optimistic about the prospects for this offering, and I will share an example illustrating why customers are choosing our Revvy CPQ and CLM offerings in a moment.

While the record total revenue and record recurring revenue results of Q3 are a testament to the strength of both the market opportunity for revenue management and the Model N offering, we're not pleased with our execution in the face of these challenges, or the impact they will have on our results for FY16 and FY17. Customers keep reiterating to me that the Model N offering is a core enabler to the strategic transformation of revenue management across their enterprise. Their behavior also attests that they believe in the differentiation and unique value the Model N Revenue Management Cloud offering delivers as an integrated, end-to-end, flexible application suite that is natively inter-operable with other backbone systems, like Salesforce and SAP versus other disconnected point solutions for pricing and quoting.

And here are four life sciences examples showcasing adoption of our Revvy solutions and our unique RMaaS offering, which enables our customers to migrate from their enterprise on-premise deployments to the cloud. Mylan N.V. is a new logo, and it's also an interesting win. Mylan is a $9.5 billion global generic and specialty pharmaceuticals company registered in the Netherlands, with operating headquarters in the UK. They have 35,000 employees, 14,000 separate products, 40 separate manufacturing locations, and they operate in 145 countries.

Their business is incredibly complex, with a diverse set of global business needs. Mylan subscribes to Model N's Global Price Management solution to help build a centralized pricing system for their entire portfolio of products and markets. Two important capabilities uniquely delivered by Model N were international reference pricing and launch sequence optimization.

Mylan wanted to improve their stimulation approaches for launching and pricing products in various countries, to ensure they did not price their products too low, thereby missing revenue opportunity, or too high, driving volume and market share below plan. With Model N, Mylan is now able to launch a single common repository to competitively manage pricing, optimize launch strategies and establish consistent governance worldwide.

Now, BioMarin is another story showing strategic uptake for our Revvy GPM solution, like Mylan. BioMarin is a world leader in developing and commercializing innovative biopharmaceuticals for rare diseases driven by a genetic cause. They have 2,000 employees and close to $900 million in revenue globally. BioMarin's global price governance team used manual processes to perform their work. They would manually calculate international reference price every time a price-exception request was made, sometimes specific to an individual patient.

This would impact pricing around the world and require extensive manual effort to calculate and approve. BioMarin subscribed to Revvy GPM and is currently deploying it globally. Their global pricing team is expected to go live later this quarter in 64 countries, supporting all product families. With a single, global, cloud-based platform powering this critical business need, BioMarin expects to secure pricing, governance, accelerate their processes, and protect pricing and revenue on a global scale.

Another story centers around a global diversified technology company with over $20 billion in annual revenue. They chose to expand their Model N footprint and replace a competitor at the same time. This company is a leading health technology company with 105,000 employees that focuses on diagnostic imaging, image guided therapy, patient monitoring and health informatics products and services.

They are embarking on a major business transformation program across the entirety of a their global enterprise, and they chose Model N to address their initiative to improve and simplify how they market, quote, sell and serve their customers. In Q3, they added Model N's Revvy CLM, which stands for Contract Lifecycle Management solution, for direct integration to Revvy CPQ, or Configure, Price, Quote, which they subscribed to in Q2 of this fiscal year. In doing so, they chose to stop a competitor's project already underway, to pursue a better solution with Model N.

Model N will replace 10 legacy technologies from various suppliers, including our competitor, and provide a single integrated solution covering all global markets, products, services and channels. When fully implemented, 7,000 users in over 100 countries will use Model N to manage, optimize and streamline their quoting, pricing and contracting processes for improved sales productivity and increased customer responsiveness and satisfaction.

Now, a particularly compelling part of this story regarding this customer's decision to opt for Model N is not only the strength and scalability of our solutions, but the native integration we offer into two key ecosystems important to them. Their strategic platform for order-to-cash is SAP, and they use Salesforce for market-to-order. They needed a solution that could bridge those worlds. Our deep integration into SAP's variant configurator tool and native interoperability with Salesforce was particularly compelling. Both our solutions are built atop the Force.com platform, and are being deployed directly via the Salesforce cloud platform.

Q3 also saw Lupin Pharmaceuticals leveraging the strategic, unique RMaaS offering I mentioned earlier. Lupin is a $900 million US subsidiary of Lupin Limited, a $2 billion transnational pharmaceutical based in Mumbai, India. Lupin has an aggressive growth strategy that targets both advanced and emerging markets. As the company grows in both advanced and emerging markets, they need a solution that can handle the geographic diversification and the different government regulations which coincide with those areas. To balance the needs of these multiple global markets, Lupin needed a sophisticated end-to-end revenue management system that would address its core regulatory and commercial pharma needs. And they subscribed to Model N's Revenue Management Cloud platform to do that.

With their decision to transform and subscribe to the Revenue Management Cloud, Lupin has access to the entirety of Model N's solutions for regulatory and commercial pharma revenue management needs. Their enterprise subscription will always keep Lupin on the most current Model N release, and allow them to use only the solutions that they need, when they need them. Lupin's benefits include predictable spend, access to a complete and powerful platform, enabling it to support the introduction of a wide portfolio of branded and generic products quickly and easily via the US business units, as well as any non-US business unit.

Now, all of these customer win stories serve as strong testaments to the value of revenue management, our vision and our strategy. Despite the challenges I discussed earlier impacting our high-tech business, we remain confident that our solution set, including the capabilities of our channel data management offering, is the right one for our customers. Just last month, I was visiting one of our existing semiconductor customers, where the CIO emphasized the strategic importance our solution offers to running their business. I believe we will see improvement in this segment over time, and I am also looking forward to capitalizing on new opportunities for revenue management across other segments of the high-tech industry such as computer manufacturing and software.

As I mentioned last quarter, I am keenly focused on bringing the best talent to Model N's leadership team, to further strengthen the seasoned enterprise software experience we already possess. I'm happy to share the addition of another strong executive, with the hire of Amelia Generalis, our new Chief People Officer. Prior to joining Model N, Amelia led Anaplan's HR function during a period of extraordinary growth where the employee base grew 600%. Before Anaplan, she ran the HR function for the cloud business unit at SuccessFactors, and stayed through their SAP acquisition. She has held a host of HR leadership positions at great brands like Electronic Arts, Shell Oil and the Ford Motor Company.

I am also pleased to share the addition of another outstanding executive to Model N's Board of Directors. Melissa Fisher is the current CFO at Qualys, a provider of SaaS security and compliance solutions. She is an accomplished strategy and finance executive, with broad technology sector knowledge and a successful track record in both large and startup environments. Prior to Qualys, Melissa was Vice President, FP&A, IR and Treasury at Zynga. Prior to Zynga, she was Head of Corporate Development, Treasury and IR at Digital River, and before that, led the M&A teams at various investment banking firms, including [forest], Bank of America and Goldman Sachs. I am truly pleased with the caliber of talent we continue to attract to Model N. Together with our current team, they will help us scale and continue to grow our business in the years ahead.

In closing, I want to reiterate that we delivered record third-quarter overall revenue and SaaS and maintenance revenue results, exceeding our guidance for both revenue and profitability, while also garnering several key competitive wins. I believe we will continue to see increasing levels of SaaS as option in the segments we serve, and continued investment in revenue management as a catalyst for our long-term top-line growth. I would like to turn the call over now to Mark Tisdel, our CFO, to discuss more of our financial results and guidance in greater detail for the remainder of the year. Mark?

Thank you, Ed. Total revenues for the third quarter were a record $27.9 million, above our guidance range of $27.2 million to $27.5 million. This is up 18% from $23.6 million in total revenue in the year-ago period. Also, SaaS and maintenance revenues were a record $22.8 million for the quarter, up 49% from Q3 2015. License and implementation revenues were $5.1 million.

Our shift toward SaaS and maintenance revenues continues to progress, and Q3 represents a record high for this metric at 82% of total revenue, up from 81% in Q1 and Q2 of this year. This is over a 1,700-basis point improvement from the 65% of total revenue in Q3 FY15. Our gross profit for the third quarter was $14.1 million compared to $12.7 million for the third quarter of FY15. Net loss for the third quarter was $8.6 million compared to $5.8 million in the third quarter of FY15. Loss per share was $0.31 for the third quarter compared to $0.22 in the third quarter of FY15.

Before I move on, I want to remind you that unless otherwise specified, all of the metrics I will be discussing from here on in this call, are non-GAAP results. Our non-GAAP metrics exclude stock-based compensation and other one-time items. A complete reconciliation of GAAP to non-GAAP results is provided with our earnings press release issued earlier today and available on the investor section of our website.

Non-GAAP in gross profit for the third quarter was $14.9 million compared to $13.1 million in the third quarter of FY15. Similar to recent quarters, gross profit in this quarter includes an impact of roughly $700,000 from the amortization of capitalized software that began upon the launch of our Revvy CPQ product. Overall non-GAAP gross margin in the third quarter was 53%, up from 50% last quarter, and compared to 56% in Q3 of last year.

As previously mentioned, the year-over-year decrease in gross margins is primarily due to our transition to a recurring revenue model. We continue to expect our gross margin to further improve as we migrate to a higher percentage of revenue through SaaS and maintenance revenues. As we have previously discussed, we expect Q2 to be the low point during this transition, and we were pleased to deliver a 300-basis point improvement from Q2 to Q3. We expect to show further improvement as we migrate to a higher percentage of our revenue to SaaS and maintenance revenue. However, as we have stated in the past, we do expect some quarter-to-quarter variability in gross margin, depending on the mix of revenue and other factors.

Non-GAAP net loss in the third quarter was $4.4 million compared to a net loss of $2.1 million in the third quarter of FY15. As we have discussed, we're experiencing larger losses versus years prior, as we are transitioning to a recurring business model. We produced a non-GAAP net loss per share of $0.16 based on a share count of 27.6 million shares, compared to a net loss per share of $0.08 based on a share count of 26.3 million shares in the third quarter of last year. This was better than our guidance of a non-GAAP net loss of $0.20 to $0.21 per share. Also, we expect our operating loss and our net loss per share to improve as the transition to a recurring revenue model continues to mature.

Adjusted EBITDA for the third quarter was negative $3.2 million compared to a negative $1 million in the year-ago period. We ended the third quarter with $70 million of cash and cash equivalents, which is flat compared to the end of the second quarter. At the end of the third quarter, our accounts receivable balance was $19.8 million, and our total deferred revenue was $32 million. As previously mentioned, we believe our accounts receivable and deferred revenue balances are not a meaningful indicator of the business activity during a particular quarter, as the timing of invoicing under our contracts impacts these items, as we do not bill our customers upfront for the total contract fees.

For the third quarter, cash flow from operations was $500,000, which, after adding CapEx of approximately $500,000 and capitalized software of $300,000, produced a negative free cash flow of $300,000. This compares to a cash flow from operations of $1.4 million in the third quarter of last year, which, after adding approximately $700,000 of CapEx and capitalized software of $600,000, produced a free cash flow of $100,000. Similar to prior commentary in regards to our receivables and deferred revenue balance, there can be some quarter-to-quarter variability in our cash flow, as it is impacted by the timing of our invoicing under contracts.

Moving on, let me now outline our guidance for the fourth quarter of FY16, as well as our expectations for the full FY16. For the fourth quarter ending September 30, we expect total revenues to range from $27.5 million to $28 million. Non-GAAP loss from operations in the range of $3.5 million to $3 million. This would lead to a non-GAAP net loss per share in the range of $0.13 to $0.11, based on an average weighted share count of 27.8 million shares.

For the fu FY16, we expect total revenue to range from $106 million to $106.5 million, for growth of 13% for the year as a whole. Non-GAAP loss from operations in the range of $18 million to $17.5 million, non-GAAP net loss per share in the range of $0.66 to $0.64, based on a weighted average share of 27 [point] million shares. The annual recurring revenue is expected to range from $37.5 million to $38.5 million, an increase of 93% to 98% over FY15. Please note, we define annualized recurring revenue as the monthly recurring revenue at September 30, 2016, multiplied by 12.

We will provide our detailed annual guidance for FY17 on our Q4 earnings call, which will be in early November. Although we have almost two months of Q4 left to complete, we currently believe our annual year-over-year growth will be less than the anticipated growth for Q4 2016, which is 11% year over year. However, as Ed noted, we're still in the planning process, and we will have much more visibility by the November call. We also expect to have our second annual Investor and Analyst Day in the days following the earnings announcement, and we will provide much more detail of FY17 and beyond. We will now open the floor for your questions.

(Operator Instructions)

Jackson Ader, JPMorgan.

Hey, guys. It's Jackson on for Sterling Auty. First question is, the customer migrations in the life science sector, is that, that the migrations are taking longer? Is it that people just aren't interested in migrating at all? Can we get a little bit more color on that?

Sure, Jack, this is Ed. Let me go ahead and respond to that. Really good to speak with you on the call today. It is absolutely not that the migrations are not happening. They truly are. As a matter of fact, that is why I wanted to highlight the story around Lupin, who successfully made that migration, converted their on-prem solutions over to SaaS, to see the benefits of that.

What we are seeing is that the vast number of new projects that are occurring in the market are cloud versus on-prem. The projects are absolutely happening, but they are complex, and any kind of complex project is going to take some time.

Okay, fair enough. And then you mentioned some of the go-to-market issues, and that you have already dealt with them, or you feel like you are already past some of the go-to-market issues in high tech. What were the issues specifically, and how were you able to deal with them?

In terms of the go-to-market, I want to underscore that the demand that we're seeing in the market, as we mentioned when we were talking about the on-prem conversions happening in life sciences, it is truly, absolutely strong. And I really do believe that Model N has the right solution for the market.

Now, in terms of what we did see, the issues that we saw in go-to-market are certainly not any of pipeline, it's really more of execution. And high tech, we needed to improve some of the channel clarity that we had around our Revvy sales offering. And we feel that we have done that with the partnership that we have expanded with Salesforce.

We're also looking at increasing some of our focus within the sales management team in the high-tech group. I mentioned last quarter that we also added to our marketing bench strength, with the addition of David Miller into our Product Marketing Group. And he's also helping us to refine some of that value differentiation, to bring the definition of the opportunity and the value that the solutions deliver to the customers out into clear focus. In general, the team is really engaged, we're really excited, and I believe that Model N is poised for success.

Okay, cool. Thanks, guys.

Chad Bennett, Craig-Hallum.

Can you mention what kind of the retention rate was in the quarter on the SaaS or the recurring side of the business? And if there was any attrition that is impacting your guidance?

Hey, Chad, it is Mark, how are you? Thanks for being on the call. As we have talked historically, we do not disclose what our churn rate is. And as you know, historically our churn rate has been in the mid- to high-90s since the mid-2000s.

We have done a great job of retaining our customers. We've talked about before, we strongly believe that our solution is an integral part of our customers' financial backbone, integrate into their ERP solution. And because of that, we have seen a very high retention rate. We have not seen a significant change in the retention rate as we look out to Q4 and into 2017.

I am trying to reconcile the previous question. You guys reported in early May, you reiterated the guide for the year, obviously did a little bit better this quarter. Bookings, I think -- your record new customer bookings, I think, by your commentary in the March quarter. I guess what abruptly changed so much in three months that your outlook has changed this dramatically?

Hey, Chad, this is Ed. So look, right out of the gate, I want to underscore what I mentioned before when I was speaking with Jack and responding to his question. The demand in the market is absolutely strong. And what we're seeing is that we have the right size solution, depending on whether or not a customer like Lupin is ready to go for that full-scale conversion, or if they are stepping into that solution over time. I mentioned the story about the $20 billion technology company that actually purchased our CPQ solution as part of their transformation initiative back in Q1, that got performing in Q2, and now they have added our CLM solution in Q3.

So it's not really an issue of demand. What we saw as we went through the quarter really was the confluence of the three issues that I mentioned in the prepared comments. In life sciences, these are big projects. The strategic conversions from on-prem to the cloud, they are absolutely happening. In fact, the vast majority of the projects that we're seeing in the life sciences segment are the right projects for the Model N solution set. But they are taking time, and the pace is slow.

The deals are absolutely happening though. In high tech, I mentioned some of the go-to-market issues. We also saw some impact from the consolidation in the semiconductor space stalling some of the cycles. Those cycles did not stop. They are absolutely still continuing. And then in Revvy, it really was just some go-to-market issues, Chad, and we are addressing those. We believe that the SteelBrick partnership is certainly also going to help.

So as I mentioned before, the conviction that we have within the Company is not that the demand for the solution has gone or moved from the market. It is absolutely still there, and we believe we have the right solutions in place to address them.

And Chad, I just want to add on top of that, first of all, we're still very early in the planning cycle for 2017, so we're not providing full guidance at this time. We wanted to highlight what we expect based on some of the challenges that Ed outlined in the call. But again, we won't be providing full guidance until the November call. And then after that, we will do a deeper dive with you on an analyst Investor Day, which will be shortly after the Q4 call, and give a little bit more color into what 2017 looks like.

Okay, thanks.

Tom Roderick, Stifel.

Yes, hi, Matt VanVliet on for Tom. I guess first question with regard to the partnership that you announced with SteelBrick, and maybe some issues with go-to-market on Revvy. How does the CPQ product fit in with that partnership? And maybe what was the biggest driver in terms of adding a prominent CPQ partner to a product portfolio that would seemingly already address that issue?

Hi, Tom. So look, the addition of SteelBrick into the partnership is really an extension of the long-standing relationship that we already have with Salesforce. We made a pretty significant investment when we chose to put our Revvy platform on top of Force.com, so we really view this as just -- it's a natural extension.

In terms of how we work alongside one another, there is a great model that has been around in [anti] software for quite some time around co-opetition. What we see actually is a natural fit within SteelBrick's offering for our CLM product. What we are also seeing is that the direction that we are both taking in approaching the market really does have a high degree of Venn diagram overlap.

What Salesforce wants to do is complement their portfolio with portions of the Revvy solution stack that are very strong. Our Contract Lifecycle Management solution is a natural fit for that. So we are still early days in this partnership, but we're really looking forward to the pickup based on what we have heard and the excitement within their organization, and bringing this to market together.

All right. And then shifting gears to look at the Channelinsight acquisition, where are we with convergence of the product, and how have results been recently, I guess, since the acquisition? Is that having any impact on the lower expectations moving forward?

Sure, Matt. So in terms of the acquisition, I am pretty pleased so far with what we have been able to do in terms of making their team part of the Model N family. We have integrated our product teams and our go-to-market teams, and their sales organization fits in nicely with our high-tech sales team. So we have seen good results there.

In terms of the overall product fit, there is actually similarities with the Channel Data Insight offering and another offering that we have within life sciences. Both actually use -- look at third-party data to try to give insights that can be used for pricing and acceleration of contract management and visibility. So we actually see pretty strong synergies. Overall, hand-in-hand, the PMI has gone well, and the unit is really performing for us.

And then just a little color on that. I think when we talked earlier about the integration point of CDM and CDM offerings, we don't currently look at Channelinsight as a separate business anymore. We look at it as a CDM product which fits into both the life sciences and the high-tech portfolio. We see activity on both the life sciences and high-tech side of the business.

And the way we made that happen is, we moved a number of our long-term life science research and development, R&D, resources to actually, to Denver, to help with the integration efforts. And I think that has been highly successful for us. As Ed indicated, people size is an important part of the equation, but also bringing the DNA of Model N into the Denver office is in very important as well. So we see great potential for this business, we see good pipeline, and I think we see a roadway to success.

Last question for me, on a bigger more strategic thought here, you have had some really good success with your pharma customers getting the global price product out there. How do you use that to leverage additional -- whether they be Revvy products or -- helping that facilitate the move to the cloud, where it seems like you have had, at least from an announced standpoint, more traction there then maybe with some of the other newer products?

Sure, Matt. This is Ed speaking again. Look, the GPM product really does solve a truly critical need. And with some of the capabilities that we have introduced into it that I've mentioned, like international reference pricing and launch sequence optimization, it really does deliver strategic value that can have demonstrable ROI back to the Company.

In terms of the announcements that we have made, yes, we have had success with this product and we've shared that with the market in these calls. I really would view it as, it's the pull-through mechanism. So the $20 billion technology company that I mentioned earlier started with the CPQ product, moved to the CLM product. We are seeing similar movement from companies that already have our existing Revenue Management solution and are looking to step into the cloud with the deployment of the Global Price Management solution.

It is symptomatic of companies when they are looking to move to the cloud, they will move first with a product that actually helps them to solve a critical business need. And I think what you are seeing in the uptake of our GPM product in the market is demonstrative that this is really an area that the market is focused on, and we have the right solution for them.

And Matt, to give a little bit of the color on that, I think we talked about this on the last call, more than three-quarters of our customer base have a SaaS product that they've purchased from Model N. That attributes back to Ed's point, and that is, whether it is a full suite or whether it's a point solution, our customers are moving to the cloud. And this, obviously indicated earlier, this still is a great opportunity to migrate our current on-premise solution to the cloud.

All, great, thank you.

Patrick Walravens, JMP.

Hi, this is Natasha on for Pat. So I was wondering, of the three factors driving that change in guidance, which one do you think drove that change the most? And which do you see yourself focusing the most time and energy on in the coming quarters? Or in other words, which is the most important to you? And then also, could you provide us with about an approximate number of how many customers were added this quarter?

Hi, Natasha, it's Ed. Really good to speak with you again on this call. So look, first I want to note that while I mentioned three issues, Model N delivered solid record results over the past three quarters, year to date, and we're very happy with that fact and proud of that accomplishment.

It really wasn't any one single issue that is more important than the other. What we saw during the quarter as we went through it, is that these three issues really came together. The life sciences pipeline is absolutely solid, and we have got great coverage across the team versus the plan.

Also as we have mentioned, the ongoing conversions, they are still happening. So we talked just now about the uptake of some of our solutions. That is actually the strength of the Model N platform, that solutions can be deployed in a modular fashion based on the company's need. Or like in the case of Lupin, when they are ready to go completely to the cloud, we also have a product for them. We feel very confident in our ability to convert the remainder of our on-prem customers into the cloud.

On high tech, it was some expansion and focus on the sales leadership, and the management within that team, specifically. And I'm happy with the work that we're doing there to address that. So again, it really wasn't any single area, Natasha, that is more important than the other. We believe that we are poised for success, and I'm happy with the work that the team is doing to address each of these challenges.

Got it, thank you. And then do you have any color on the customers?

On the customers, Natasha, yes, we have talked about this historically. We do not disclose number of net new customers, any particular quarter. We did highlight in the previous quarter, because it was a record number of customers. Ed, in his earlier comments, did discuss a couple of the new customers we added. But we do not plan on addressing net new customers on a quarterly basis.

Got it. Great, thank you.

Eric Lemus, Raymond James.

Hey, guys, thanks for taking the question. Ed, you spoke about this earlier, talking about on the high-tech side, that the cost consolidation is affecting the business and sales cycles there. But can you give us a little bit of color on where those sales cycles stand at this point? Are they still in the pipeline? Are you actually seeing some customers turn because of this instance? And then secondarily, you have dealt with life sciences space, consolidation in that area. Is it just more so pronounced in the high-tech space versus life sciences?

Sure, Eric, great question, and really good to speak with you today. I want to make one really clear statement. The demand in the market remains. So any kind of questions about whether or not this demand has changed or has evaporated, or any kind of significant transition has happened, you can really just put those aside. The demand is there, and we see it in our pipeline, and it is strong.

In terms of what specifically happened within the high-tech segment, Eric, I am sure you can imagine that any time that there is consolidation or M&A, companies often have some pretty significant questions that they are mulling over as they try to bring massive organizations together. So the importance of our solution hasn't changed in that equation. But they did have an impact, and they pushed some of the sales cycles.

This is why I mentioned when I was making the comments, a recent customer visit with one CIO at a local semiconductor here on the peninsula, when he talked about the strategic importance of our solution set. And they had gone through an M&A event earlier last year. Throughout that entire period, the importance of our solution remained. The strategic importance and contribution that it made to the company certainly is at the top of his radar, as well as his CEOs.

So we do not see the demand changing. It was impacted by the consolidation, but we are looking forward to the contributions that the high-tech segment will continue to make to Model N.

Okay, great, that's really good color. Mark, we're several quarters out now from the Analyst Day that we had now, and looking at the long term all over, I guess the FY18 model, do you think these issues that you have had this quarter and the past couple quarters, does that change your thoughts on operating margin targets that you set forth for FY18?

Hey, Eric, thank you very much for the call. As I indicated earlier to Chad's question, we are still very early in the planning cycle for FY17, and we're not actually providing guidance on 2017 until our Q4 call. When we do have our Analyst Day in November, then we will do an update, if necessary, for FY18.

Okay, great, thanks, guys.

(Operator Instructions)

If there are no further questions at this time, I would like to turn the call back to Ed Sander for closing remarks.

So look, I want to thank everyone for joining us today. We look forward to speaking with you in the coming days and weeks ahead. And wherever you are, have a good afternoon and a good evening. Thank you.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.